Bank Frauds Jumped 159% to Rs1.85 Lakh Crore by Value; RBI Blames Banks & Failure of Early Warning System
Moneylife Digital Team 25 August 2020
The total cases of frauds (involving Rs1 lakh and above) reported by banks and financial institutions (FIs) increased 28% by volume and 159% by value during 2019-20, reveals the annual report of Reserve Bank of India (RBI). The report also shows a failure of early warnings system (EWS) in banks, where the average lag in detection of frauds was a whopping 63 months for frauds of Rs100 crore and more.  
According to RBI, bank frauds during FY19-20 have been predominantly occurring in the loan portfolio or in advances category, 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 says.
The report shows that during FY19-20 (July to June), total number of frauds in banks increased 28% to 8,707 cases, while by value it jumped more than one and a half times to Rs1,85,644 crore. During FY18-19, RBI had reported 6,799 incidents of frauds involving an amount of Rs71,543 crore. As expected, public sector banks (PSBs) lead in both, the number of frauds and amount involved. PSBs have reported 4,413 number of frauds, which are more than 50% of total number of fraud cases; however, the same State-run lenders contributed to almost 80% or Rs1,48,400 crore in these frauds, the report shows.
Incidents relating to other areas of banking, like off-balance sheet and forex transactions, fell in 2019-20 vis-à-vis the previous year. Advances contribute over 50% of cases, but these frauds are worth more than 98% of total amount of fraud cases during FY19-20. Number of frauds of card and Internet increased 30.8% to 2,678 cases from 1,866 cases, while the amount involved jumped more than two times to Rs195 crore from Rs71 crore a year ago, the report shows.
As per RBI, while the frauds framework focuses on prevention, early detection and prompt reporting, the average lag in detection of frauds remains long. 
"The average lag between the date of occurrence of frauds and their detection by banks and FIs was 24 months during 2019-20. In large frauds, worth Rs100 crore and above, however, the average lag was 63 months. The sanction of the credit facility in many of these accounts was much older," the central bank says.
However, it says, the dates of occurrence of these frauds are spread over several previous years.
According to RBI, weak implementation of 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 account for delay in detection of frauds. 
It says, "The EWS mechanism is getting revamped alongside strengthening of the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny."
To overcome this, RBI says, in consultation with the central vigilance commission (CVC), it created the advisory board for banking frauds (ABBF). The ABBF functions as the first level of examination of all large value fraud cases before recommendations or references are made to the investigating agencies by PSBs. The jurisdiction of ABBF would be confined to those cases involving the level of general manager (GM) of banks and above, it added. 
1 year ago
Let us admit the facts. If insiders are involved, there are attempts to protect from all superiors as the first trait of the fraudster is that he speaks sweetly and manages all with good compliments. Every one expresses sympathy. Banks wish to cover the scam and try to secure the loss and only finally they may initiate Vigilance inquiry. At the same time, it is the complaint from common man, that RBI believes their own bankers, and takes serious matters very simply, and the maximum they can do is a postman's job of sending such copy with a uniform covering letter to individual bank vigilance dept., and the vigilance dept writes something and the issue is lodged. The complainants get information that the grievance was sent to the concerned bank, and he may directly deal with that Bank. There is never a follow up through police complaint unless it is so serious. Let us be honest-Negligence or too much belief is the fundamental factor of a fraud. Gone were the days when management used to postpone or cutting of increment for Rs.5 shortage in petty cash of despatch dept, and spending more than Rs.5,000/- for inquiry and such laid down procedure.
1 year ago
Statutory Warning:= All these frauds constitutes only for borrowers with political backing. If any other common man, you or me tries to delay a 50,000 rupees personal loan then we will end up facing recovery agents at our home un-time like night when we go to sleep or early in the morning. So please be careful. We, common man should not think that we can also do these frauds. Thanks.
Replied to m.prabhu.shankar comment 1 year ago
It is the Constitutional Fundamental Duty of #WeThePeopleOfIndia to Demand and Endeavor to Curb Political, Bureaucratic and Judicial Extremism and We should Not Feel Helpless at Criminal Misuse of Positional Power by the People in Positions of Power. I am Babubhai Vaghela from Ahmedabad. Thanks.
1 year ago
When it was noticed last year in SBI around Rs.72000cr worth of frauds, there was no transparent action from the regulator. There is brazen neglect and the frauds now account for 12-15 percent of the NPA book. Banks on top have been extremely slow in lending and the RBI Governor in the Annual Report just released spoke of high risk aversion among banks. Bank officials at different levels are trained more at reporting and reviewing NPAs and not at responsible lending and credit risk management. More than 75% of the units financed were not monitored and supervised by the field level functionaries but they evidence their visits by debit to the units' accounts Inspection Charges. On war footing, Banks should take up vigorous training on credit risk management, fraud detection and notification, framing charge sheets properly within 15 days of noticing the fraud at the controllers' levels and punishing non-performers.
Replied to yerramr comment 1 year ago
Need of Hour 👌😀👌
1 year ago
Mr Shaktikanta Das the Incumbent Governor of RBI and Mrs Arundhati Bhattacharya & Mr Rajnish Kumar of State Bank of India should be Publicly Hanged at the Entrance of Supreme Court of India for Knowingly Allow the Giant Financial Frauds by the Banks and Open Brazen Loot of Thousands of Crores of Public Money of Poor Indians. I am Babubhai Vaghela from Ahmedabad. Thanks.
Meenal Mamdani
1 year ago
Typical bureaucratic solution.
Add one more layer to the multiple layers of bureaucracy to make matters even slower in resolution.
All the people at the top of banks and regulators socialize with each other therefore the temptation to not indict one's friends is dominant.
An ordinary person would have been nailed a long time ago.
These officials, at public sector banks, the RBI, the regulators like SEBI and even the finance ministry are in league with each other. If one of them decides to expose any one else, she/he is reminded by the others that she/he is also vulnerable for making bad/corrupt decisions.
Who will clean the Augean stables? BJP has turned out to be as corrupt as the Congress with hate-mongering and hasty, poorly thought out administration to add to the mix.
1 year ago
Why am I not surprised? Complete moral decay has set into our society. If this unchecked greed is allowed to continue, in a very short time we are going to be known as the most corrupt nation on earth. God help us.
Replied to bala.mathur comment 1 year ago
We have lived on our misguided morales as had few or none. Look back on our history and did you ever noticed that while our temples hoarded crores but never spent any money on education an orphanage. where are our morals when we go to worship and see so many beggers outide but unitsnone outside a Gurudwara and a church.We presume spirituls but our DNA shows what truely we are. The nation is being exploited in name of religion whereas Govt is selling ll profitable units and there3 had to be some agent getting ommission
1 year ago
The fundamental changes were not made in about the processing of such loans and there was just talk of any changes. No one has been held responsible for such frauds and we night not have touched the bottom yet. Modi sarkar talks of pre-2014 scams but it is evident that more money has been looted during his tenure
1 year ago
Even high value frauds (Rs.100 crore+) take more than 5 years to get detected. As most of these frauds are in loans and advances, what happened to banks follow up systems. It is nothing but lack of real accountability and lack of fear. Push culture, prolonging the enquiry etc are responsible. Added to all these is a committee approach that has made " when everyone is accountable, none is responsible". No wonder public sector banks are in the picture. How to complicate the issue? Create more than 50 files and put it before the investigating agency. None will be able to dig up the truth. It's unfortunate. Public money is at stake.
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