Bank Frauds in India/Financial Frauds in India
Bank Frauds in India- We must understand that the COVID-2019 pandemic greatly disrupted the world’s entire economic activity. India is not exempt from this impact.
Right now, the Indian economy is in the recovery phase. We are much more focused on increasing revenue and earnings activities.
But at the same time, we should not move our focus from the facts. Bank fraud in India have reached the top. They have broken all the previous records during the F.Y 2019-20.
This is quite alarming for a developing country like India. We are still many light years away to afford such a huge amount of bank frauds in India.
Yes! In this post, I would like to share some alarming facts about Financial frauds in India. These frauds have hit our country’s economic system quite hard over the last few years.
I urge my readers to read through the post till the end. It’s essential to understand the whole concept of scams in India. This includes precisely the financial frauds in India.
Value of Bank Frauds in India during the last 5 financial years
Have you really checked the above figures very carefully? If yes, then you can see that the total value of financial frauds in India from F.Y 2015-16 to 2018-19 is ₹1,55,342.71 Crores.
Whereas, the amount of frauds that have been reported for the F.Y 2019-20 only is a whopping amount of over Rs. ₹185,644.00 Crores.
As per the annual report of RBI, the value of frauds for the F.Y 2019-20 (1.85 Lakh Cr.) alone has single-handedly outperformed the last four previous years’ total value(1.55 Lakh Cr.). Therefore, is not this figure really very daunting for the Indian economy?
What does Bank Frauds or Financial Frauds in India mean?
Bank Fraud or Financial fraud in India can be defined as an unlawful, unethical act. It is an intentionally deceptive act committed by unscrupulous persons. They do this to make personal and financial gains.
So, in simple terms, Fraud means an act of cheating purposefully for obtaining unlawful and unfair gains. Therefore, banking fraud is a threat to financial institutions. If not tackled firmly, the banking industry might gradually vanish in the near future.
Financial fraud in India is a threat as well as a challenge to the Indian banking regulator, the R.B.I. The Reserve Bank of India has been continuously fighting against this threat and challenges by implementing different policies and procedures.
The Central Bank, i.e. RBI, has been warning the Indian banks regularly. This includes both public sector and private sector banks. The warnings are about the increasing bank fraud. The RBI has implemented various measures for a strong reporting mechanism of fraud. It has introduced more stringent internal checking and internal controls.
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Also, there are instances where frauds are being reported to the RBI very late due to delay in detection, so RBI has come up with a mandatory reporting format for all banks in order to curve the number of frauds and early detection of frauds.
Why do Bank frauds happen?
We are human beings and our cravings for more and more money indulge us to be involved with any unlawful practices. Earlier it was evident that the bank staffs were directly engaged mostly in the bank frauds of a small amount.
It has come to the notice of the RBI that with the expansion of the economy, the amount of large financial frauds in India are increasing exponentially. Now the borrowers are becoming the main fraudsters.
As per the latest report of the RBI, there is inadequate implementation of early warning signals (EWS). Audit reports are inconclusive. There is a failure to comply with the stringent control and monitoring system. Also, a lack of decision-making has helped delay the detection of frauds.
But the dynamics have changed gradually over the period of time. Bank frauds are not now limited to the banks only. It has now become financial frauds in broader terms.
Cases of money laundering, black money are increasing rapidly so system-wide analysis of the banking system, capturing major risk patterns, process audit, concurrence Audit and Statutory Audit were strengthened to curb the menace of financial frauds in India.
As per the Ghosh Committee Report(1990), the following aspects are playing a crucial role behind all these financial perpetrations occurring around us.
Main reasons behind the Bank frauds
- We are human beings and our cravings for more and more money indulge us to be involved with any unlawful practices. Earlier it was evident that the bank staffs were directly engaged mostly in the bank frauds of a small amount.
- It has come to the notice of the RBI that with the expansion of the economy, the amount of large financial frauds in India are increasing exponentially. Now the borrowers are becoming the main fraudsters.
- As per the latest report of the RBI, there is inadequate implementation of early warning signals (EWS). Audit reports are inconclusive. There is a failure to comply with the stringent control and monitoring system. Also, a lack of decision-making has helped delay the detection of frauds.
- But the dynamics have changed gradually over the period of time. Bank frauds are not now limited to the banks only. It has now become financial fraud in broader terms.
Further, as per the report of Shri B.D Narang, the following aspects took a vital role in the occurrence of a larger amount of fraud.
It is quite unprecedented that as per the RBI’s latest report the financial frauds for the F.Y 2019-20 has crossed 2 times of the fraud amount of F.Y 2018-19. Financial frauds in India 2020 involving larger amount are coming to the public domain now.
Bank Frauds in India 2020
The RBI is very much concerned about the effectiveness of its existing EWS mechanism. The main motto of the RBI is now to reduce the time of occurrence of fraud and reporting of fraud.
It is now contemplating reconstituting the fraud detection mechanism holistically. This would indicate more early caution signals. These signals help identify the risks and vulnerability involved in large borrowing accounts.
The average delay between the occurrence of frauds and their detection by banks was 24 months during 2019-20. Other financial institutions also took around 24 months to detect frauds. But unfortunately for frauds involving more than ₹100 crores, the average delay in reporting is 63 months.
Bank Frauds cases in India 2020
Now, let us see the actual scenario of bank frauds cases in India 2020
| Nature of Frauds | F.Y 2018-19 (₹ in Crores) | F.Y 21019-20 (₹ in Crores) | Increase/Decrease (₹ in Crores) |
| Advances | 64,548 | 1,82,051 | 1,17,503 |
| Off-balance sheet | 5,538 | 2,445 | -3,093 |
| Forex Transactions | 695 | 54 | -641 |
| Card/Internet | 71 | 195 | 124 |
| Deposits | 148 | 616 | 468 |
| Inter-branch accounts | 0 | 0 | 0 |
| Cash | 56 | 63 | 7 |
| Cheque/DDs | 34 | 39 | 5 |
| Clearing accounts | 209 | 7 | -202 |
| Others | 244 | 174 | -70 |
| Total(₹ in Crores) | 71,543 | 1,85,644 | 1,14,101 |
