A data released by the Reserve Bank of India (RBI) on Friday revealed that fraudsters have looted a whopping Rs 41,167.7 crore from the banking system in 2017-18. The Indian banking system witnessed a sharp jump of 72% in the frauds in the financial year 2017-18. The previous year saw 5,076 cases of fraud which ripped the banks of Rs 23,933 crore. In the financial year 2017-18, such cases rose to 5,917.
Despite stringent rules which are expected to be watchful, the fraud instances have continued to rise over the past 4 years. The amount taken as a result of such treachery has risen by 4 times from Rs 10,170 crore in 2013-14.
Also, the number of cyber frauds cases during 2017-18 has increased from 1,372 cases(Rs 42.3 crore) last year to 2,059(Rs 109.6 crore) this year.
It was also observed that the prominent fraud cases reported in the financial year 2017-18, included those related to off-balance sheet operations, foreign exchange transactions, deposit accounts and cyber-activity. Also, about 80 per cent of all the fraud cases are the cases of large-value frauds involving Rs 50 crore or more. And 93 per cent of the fraud cases of more than Rs 1 lakh occurred in Public Sector banks, while the private banks suffered from only 6 per cent of such cases. Such frauds have significantly increased in the number of bad loans which were at Rs 10,39,700 crore by March 2018.
The central bank has claimed that Punjab National Bank (PNB) case which involved fugitive business tycoons Nirav Modi and Mehul Choksi is the main reason behind this increase in the amount that is ripped off the banks because of fraud cases in 2017-18. This case involved a fraud of more than Rs 13,000-crore. Also, RBI has observed that such frauds have now become the biggest challenge in the management of operational risk for the banks. The RBI data also reflected that the large-value frauds are usually carried out by opening current accounts outside the lending consortium without a no-objection certificate from lenders, deficient and fraudulent services/ certification by third-party entities, diversion of funds by borrowers through various means like via associated/ shell companies, lapses in credit underwriting standards and failure to identify early warning signals.
The RBI had advised the Indian Banks Association (IBA) in February this year to spark off the action for an enhanced IT-enabled, user-friendly, web-based TPE reporting. It also called for a wide-ranging infrastructure which inculcates the required data security and monitoring measures. The central bank has also directed banks to such control measures in a timely manner in the wake of cases related to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system. In February 2018, an expert panel led by Y H Malegam was set up to examine the classification of assets and the related provisioning practices followed by banks to counter the fraud cases.
The banks have to report the names of third-party entities involved in the bank frauds to the IBA. These third-party entities can be advocates, chartered accountants, valuers and architects.