Sharp Increase in Fraud Cost Indian Banks Rs 42,167 Crore in 2017-18, Says RBI

This is 72% more than the loss due to bank fraud in 2016-17.

New Delhi: Despite “stringent monitoring and vigilance,” data released by the Reserve Bank of India (RBI) reveals that fraudsters have looted India banking institutions of Rs 42,167 crore in 2017-18.

This is a sharp increase of 72% from Rs 23,933 crore from the previous year, according to the Indian Express

The data revealed on Friday by the central bank shows that there were 5,917 instances of bank fraud in 2017-18 compared to 5,076 cases in the previous year, and that such instances of fraud have been rising year on year – increasing by over four times in the last four years. Bank fraud cases amounted to Rs 10,170 crore in 2013-14.

This year, frauds related to off-balance sheet operations, foreign exchange transactions, deposit accounts and cyber-activity were the most prominent. According to the Indian Express, banks reported an increased number of cyber frauds in 2017-18 – losing Rs 109.6 crore in 2,059 cases against Rs 42.3 crore in 1,372 cases last year.

Also read: Raghuram Rajan Gave PMO a List of ‘High Profile NPA Fraud Cases’ but No Action Was Taken

A majority – about 80% of all recorded frauds in 2017-18 – were large-value frauds, wherein each case involved an amount of Rs 50 crore or more. About 93% of cases worth more than Rs 1 lakh took place in PSU banks, while private sector banks only accounted for 6%.

This considerable increase in bank fraud has significantly contributed to the mushrooming bad loans, which loomed around the Rs 10,39,700 crore mark as of March 2018.

The RBI, however, reported that this sharp increase in terms of amount is largely due to large-value banking fraud cases in the jewellery sector – referring to the case involving the fugitive businessmen, Nirav Modi and Mehul Choksi. The over Rs 13,000 crore Punjab National Bank (PNB) case has made a significant dent in the banking fraud data this year.

Operational risk management, according to the central bank, has been seriously challenged this year due to increased bank fraud, with over “90% of them located in the credit portfolio of banks,” reported the Indian Express.

The central bank reported that modus operandi  of large-value frauds involves “opening current accounts outside the banking consortium without no-objection certificates from lenders, division of funds by borrowers through various means,  including through associated/shell companies, lapses in credit underwriting standards, deficient and fraudulent services or certification by third-parties and the banking sectors failure to identify early warning signs,” according to the Indian Express.

Also read: IT Dept Raised Red Flags Over Nirav Modi Months Before PNB Scam Broke: Report

In February 2018, The Indian Banks Association (IBA) was instructed by the RBI to install enhanced IT-enabled, user-friendly, web-based Third Party Evaluation (TPE) reporting and establish an infrastructure with comprehensive data security and control measures.

Given the increase in cases related to the Society of Worldwide Interbank Financial Telecommunication (SWIFT) system, banks were also directed by the RBI to strengthen their operational control measures in a timely manner.

Banks are also required to report the names of third-party entities like advocates, chartered accountants, valuers and architects involved in bank frauds to the IBA, which is then required to circulate a caution list among banks.