Business Desk, ETV Bharat: The value of banking frauds in India has more than doubled in 2019-20 compared with a year ago, according to the Reserve Bank of India’s (RBI’s) Annual Report.
The Indian banking system saw Rs 1.86 lakh crore of money involved in a total of 8,707 fraud cases in 2019-20 compared with Rs 71,543 crore of money in 6,799 cases in 2018-19.
“The total cases of frauds reported by banks/FIs (financial institutions) increased by 28% by volume and 159% by value during 2019-20. The date of occurrence of these frauds are, however, spread over several previous years,” RBI said.
Notably, RBI’s banking fraud data takes into account only those cases that involve Rs 1 lakh and above. Cases involving smaller amounts have not been included.
Also, RBI said in the report that amounts involved in these fraud cases do not reflect the amount of loss incurred. “Depending on recoveries, the loss incurred gets reduced. Furthermore, the entire amount involved is not necessarily diverted,” the central bank said.
Public sector banks hit the most
Value of money involved in banking frauds at public sector banks (PSBs) made up a whopping 80% of the total at Rs 1.48 lakh crore in 2019-20 compared with Rs 63,283 crore a year ago. The number of fraud cases at PSBs, meanwhile, stood at 4,413 compared with 3,568 cases a year ago.
Private sector banks saw 3,066 fraud cases involving Rs 34,211 crore in FY20 compared with 2,286 cases involving Rs 6,742 crore in FY19.
Foreign banks also saw a surge in cases, but the amount involved fell marginally. These lenders reported 1,026 cases involving Rs 972 crore in FY20 compared with 762 cases involving Rs 955 crore in FY19.
On the other hand, financial institutions saw number of cases decline from 28 cases in FY19 to 15 in FY20, but value of money involved increased almost four times from Rs 553 crore to Rs 2048 crore.
Which banking segments are reporting these frauds?
RBI said frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value. “There was a concentration of large-value frauds, with the top 50 credit- related frauds constituting 76% of the total amount reported as frauds during 2019-20,” it said.
Notably, number of frauds related to card/Internet also jumped by a sharp 44% to 2,678 in 2019-20 from 1,866 in 2018-19. The amount involved in such cases this year stood at Rs 195 crore compared with Rs 71 crore in 2018-19.
Meanwhile, fraud incidents relating to other areas of banking like off-balance sheet and forex transactions fell in 2019-20 compared with the previous year.
Detection time still too high
In a worrying sign, RBI said that banks and financial institutions took an average of 63 months (over 5 years) to detect large frauds involving Rs 100 crore and above.
“While the frauds framework focuses on prevention, early detection and prompt reporting, the average lag in detection of frauds remains long,” the central bank noted.
Overall, taking into account the smaller fraud cases as well, the average lag between the date of occurrence of frauds and their detection by banks/financial institutions was 24 months during 2019- 20.
Reasons behind the lag
RBI blamed weak implementation of early warning signals (EWS) by banks, non-detection of EWS during internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports and lack of decision-making in Joint Lenders’ meetings for the delay in detection of frauds.
In order to keep the situation in check in future, RBI said that it would conduct a study in 2020-21 on large-value frauds with the involvement of select banks, NBFCs, urban cooperative banks and domain experts.
The study will aim to recognise the causes for delay in identifying frauds by supervised entities and suggest measures for early detection and timely mitigation of the risks arising out of frauds.
RBI is also engaged in interlinking various databases and information systems to improve fraud monitoring and detection. “Online reporting of frauds by NBFCs and the CFR (Central Fraud Registry) portal of SCBs (scheduled commercial banks), augmented with new features, are likely to be operational by January 2021,” it said.
