Bank Frauds in India /Financial Frauds in India 2020

Bank Frauds in India/Financial Frauds in India

Bank Frauds in India- It is quite imperative for all of us to know that the total economic activity of the world got tremendously disrupted due to the COVID 2019 pandemic and India is not an exception to this impact.

Bank Frauds in India/FInancial Frauds in Indis-ArthikDisha

Though right now the Indian economy is on the recovering phase and we are much more focused on increasing the revenue and earning activities.

But at the same time, we should not move our focus from the facts that the Bank frauds in India have reached the top and 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 the Financial frauds in India that have hit our country’s economic system quite hard over the last few years.

I would urge my readers to go through the post till the end to understand the whole concept of scams in India or precisely the financial frauds in India.

Value of Bank Frauds in India during the last 5 financial years

F.YValue(Crores)No. of CasesAverage value of
frauds per case(Crores)

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 amounts of frauds that have been reported for the F.Y 2019-20 only is a whooping worth 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?

A Bank Fraud or Financial fraud in India can be defined as “an unlawful, unethical, intentionally deceptive act of an unscrupulous person or persons 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 kind of threat to the financial institutions, if not tackled with strong hands, the banking industry might be vapourised gradually in near future.

Financial frauds 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 with this threat and challenges by implementing different policy and procedures.

The Central Bank i.e. RBI has been warning the Indian banks both public sector banks and private sector banks on regular basis regarding the increasing bank frauds. Various measures have been taken by the RBI regarding strong reporting mechanism of frauds, 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.

What are the Types of Bank Frauds in India?

As per the RBI, bank frauds have been classified into the following seven categories for maintaining the uniformity so that all banks can report the cases of frauds to the RBI and take strong legal actions as per the provisions of the Indian Penal Code.

The Bank frauds in India can be categorised into the following:

  • 1.Trust: Misappropriation and criminal breach of trust;
  • 2.Fraudulent act: Act of forgery such as fraudulent encashment using forged instruments, documents, manipulation of books of account or through fictitious accounts and conversion of property;
  • 3.Granting unlawful credit: Unlawful credit facilities extended by the bank personnel for an illegal reward or gratification;
  • 4.Negligence: Cases of negligence and cash shortages;
  • 5.Cheating: Any act of cheating and forgery;
  • 6.Foreign exchange transactions: Any irregularities in the foreign exchange transactions;
  • 7.Any other frauds: Any other kind of frauds not mentioned above.

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, inadequate implementation of early warning signals(EWS), inconclusive audit reports, failure to comply with the stringent control and monitoring system, lack of decision making helped in delay in 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

  • Laxity in control: Weaker observance of the laid down regulatory framework, systems and procedures by the operational staffs and also supervisory officers;
  • Taking advantage of the laxity: Fraudsters take advantage of the laxity of the employees in maintaining time tested safeguards;
  • Negligence of the Higher Officials: Also there is huge negligence on the part of the higher officials regarding timely monitoring of the control system and their scrutiny from time to time;
  • Job Rotation: Absence of the timely and frequent job rotation/ transfer of the banking staffs also takes a crucial part in the occurrence of the frauds.

Further, as per the report of Shri B.D Narang, the following aspects took a vital role in occurring larger amount of frauds:

  • Wrong persons: Without having proper enquiry or scrutiny wrong persons were allowed in both deposits and borrowal of accounts;
  • Brokers/Agents/Middlemen: Unscrupulous persons acted as so-called Brokers/Middlemen/Agents were entertained in banking day to day activities without proper scrutiny;
  • Large Credits/ Transactions: Occurrence of large credit or transactions in the newly opened account, did not create any suspicion in the staffs and no attempt was made in verifying the genuineness of such transactions;
  • Appraisal of Borrower Accounts: Appraisal and review of borrowal accounts were carried out as a matter of routine but it lacked the early warning signals(EWS);
  • Letter of Credit: Letter of Credit was sanctioned without proper verification and appraisal and outside the credit limit;
  • Failure of concurrent audit: The objectives of the concurrent audit was a big failure undoubtedly;
  • Abnormal delay: Abnormal delay in completing the fraud investigation by the investigating agencies such as the Central Bureau of Investigation(CBI), Enforcement Directorate(E.D), Economic Offence Wing(EWA) etc and also an enormous amount of delay in completing departmental action.

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 moto of the RBI is now to reduce the time of occurrence of frauds and reporting of frauds.

It is now contemplating to re-constitute the fraud detection mechanism holistically that would indicate more early caution signals in order to identify the risks and vulnerability involved in large borrowing accounts.

The average delay between the date of occurrence of frauds and their detection by banks and other financial institutions was 24 months during 2019-20. But unfortunately for frauds involving more than ₹100 crores, the average delay in reporting is 63 months.

Highlights of financial frauds in India 2020:

  • The total cases of frauds (involving ₹1 lakh and above) reported by banks and FIs increased by 28 % by volume and 159 % by value during 2019-20;
  • Frauds have been occurring in the loans and advances category both in terms of number and value;
  • Loans and advances given to the borrowers constitute more than 98.06 % of all the fraud cases reported to RBI;
  • Out of the total amount of ₹1.85 Lakh Crores, Public Sector Banks constitute 80 % of the total frauds;
  • Top 50 credit-related bank fraud constitutes 76% of the total fraud value i.e. ₹1.41 Lakh crores;
  • Substantial increase in card/internet related frauds amounting to ₹195 Crores;
  • Most surprisingly the deposits related fraud has sky-rocketed to ₹616 Crores.

Bank Frauds cases in India 2020

Now, let us see the actual scenario of bank frauds cases in India 2020

Nature of FraudsF.Y 2018-19
(₹ in Crores)
F.Y 21019-20
(₹ in Crores)
(₹ in Crores)
Off-balance sheet5,5382,445-3,093
Forex Transactions69554-641
Inter-branch accounts000
Clearing accounts2097-202
Total(₹ in Crores)71,5431,85,6441,14,101

Bank Frauds in India cases 2020-ArthikDisha

Biggest 5 Scams in India at a glance

  • Vijay Mallya Scam: He is accused of a fraud and money laundering of ₹ 9,000 Crores approximately from SBI and its consortium;
  • Nirav Mode Scam: CBI is investigating the biggest scam of ₹ 11,400 Crores from PNB Brady House branch by issuing inappropriate bank guarantee in form of fraudulent Letter of Credit(LC);
  • Ramalinga Raju-Satyam computer Scam: The Satyam scandal was a ₹7,000 Crores corporate scam conducted by Ramalinga Raju.
  • Coalgate Scam: The Coalgate scam is considered a political scandal of ₹1.86 lakh Crores identified by the Comptroller and Auditor General (CAG) in 2012 under UPA regime;
  • 2G Spectrum Scam: – The CAG had notified that there was a difference of ₹1.76 lakh Crores between the money collected and that mandated to be collected during the 2G spectrum allocation in 2008. In 2012, the Supreme Court declared that the spectrum allocation was as unconstitutional and arbitrary and cancelled 120 licenses.

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