Page 7 - Banking Finance July 2024

BANK UPDATE

The RBI also pointed out that regula- using artificial intelligence (AI), the sector banks consistently accounted for
tory measures aimed at slowing con- bloc's securities watchdog said in its the highest total fraud amount.
sumer lending have worked. first statement on AI. The majority of fraud cases have oc-

The European Securities and Markets curred within the realm of digital pay-
Canara Bank approves di- Authority (ESMA) set out how financial ments (specifically involving cards and
luting 14.5% stake in its firms regulated in the 27-country bloc internet transactions) both in terms of
can use AI in day-to-day operations frequency and monetary value.
life insurance venture without falling foul of the EU's MiFID The report states that fraud cases re-
Canara Bank has approved commenc- securities law. ported in the loan portfolio (under the
ing the process of diluting a 14.5% While AI holds promise in enhancing advances category) have constituted
stake in its subsidiary, Canara HSBC Life investment strategies and client ser- the primary source of financial loss.
Insurance Company. vices, it also presents inherent risks, Private sector banks mostly reported
This process will be carried out by listing and the potential impact on retail in- frauds in small-value card and internet
the life insurance subsidiary on the na- vestor protection is likely to be signifi- transactions. Frauds in public sector
tional stock exchanges through an IPO. cant, ESMA said. banks were primarily concentrated
Canara HSBC Life Insurance Company's "Importantly, firms' decisions remain within the loan portfolio. "While small
proposed IPO is currently subject to the responsibility of management bod- value card/internet frauds contributed
the receipt of necessary approval from ies, irrespective of whether those de- maximum to the number of frauds re-
the Reserve Bank of India (RBI) and cisions are taken by people or AI based ported by the private sector banks, the
the Government of India's Department tools," ESMA said. frauds in public sector banks were
Of Financial Services (DFS). "Central to the use of AI in investment mainly in loan portfolios," the RBI's
The bank confirmed that the size, tim- services is the unwavering commit- analysis showed.
ing and other modalities of the offer- ment to act in clients' best interest, an Most bank frauds are 3rd-
ing are expected to be finalised in the overarching requirement which ap-
coming days. plies irrespective of the tools that the party scams: IBA
firm decides to adopt in the provision Indian Banks' Association chairman M
In a stock exchange filing, Canara Bank
said: "The size of the issue, opportune of services." V Rao has said that the threefold in-
time and modalities of issue will be crease in bank frauds reported in RBI's
decided in due course. The bank will Banks reported surge in annual reports is largely due to cus-
tomers being cheated by third parties,
update the exchanges of all material frauds in FY24
developments with regard to the same, As many as 36,075 frauds were re- not breaches in banking systems. Rao
as and when required, as per appli- called for increased awareness of early
ported in banks in the financial year reporting within the 'golden hour' to
cable regulations."
2023-24 (FY24), growing nearly 166 address these frauds.
Canara HSBC Life Insurance Company, per cent from the 13,564 cases re-
established in 2008, is a joint venture ported in FY23. According to RBI's annual report,
frauds increased to 36,075 in FY24
company with a 51% stake owned by The amount involved in the bank frauds
Canara Bank and a 26% stake held by the from 13,564 in the year-ago period. It
decreased 46.7 percent year-on-year said that in volume terms, the frauds
HSBC Insurance (Asia Pacific) Holdings.
(Y-o-Y) in FY to Rs 13,930 crore, accord- have occurred predominantly in the
ing to the Reserve Bank of India's (RBI) category of digital payments (card/
Banks must take responsi- annual report released. The amount in internet).

bility when using AI: EU FY23 was Rs 26,127 crore. When you look into the root cause of
Banks and investment firms in the Eu- An evaluation of bank group-specific these frauds, it's not that they are
ropean Union cannot OpenAl strikes fraud cases spanning the past three committed by breaching bank systems,
deals with The boardroom has a legal years reveals that although the private but rather someone has perpetrated
obligation to protect customers when sector reported more frauds, public the fraud on the bank's customers.

BANKING FINANCE | JULY | 2024 | 7