In the fiscal year 2021-22, a total of 9,053 fraud cases, amounting to ₹45,598 crore, were reported in various banking operations, as per the latest RBI data on the trends and progress of banking in India. This marks a significant increase compared to the data from 2011-12 when the total amount of frauds was ₹4,497 crore from 4,091 cases. These reported frauds involve amounts of ₹one lakh and above.
The majority of the reported frauds in banking transactions pertain to ‘advances,’ with ₹43,512 crore attributed to such cases. Deposit-related frauds accounted for ₹493 crore, while cheque/demand drafts-related frauds were valued at ₹158 crore.
Interestingly, a similar trend was observed a decade ago in 2011-12. Out of the ₹4,497 crore frauds reported, a significant portion, valued at ₹3,552 crore, were related to advances, while deposit-related and cheque/demand drafts-related frauds were valued at ₹219 crore and ₹40 crore, respectively, according to RBI data.
It’s important to note that the total value of frauds has decreased over the past two years. From ₹1,66,576 crore in 2019-2020, the value of frauds declined to ₹1,18,417 crore in 2020-21 and further reduced to ₹45,598 crore in the following year.
In case of fraud, individuals are advised to promptly inform the bank if they notice any unauthorized transaction or fraudulent activity. According to the RBI, the customer’s liability may be limited or even zero if they report the unauthorized electronic transactions to the bank immediately. The responsibility now lies with the bank to prove that the customer did not fall victim to fraud, a significant shift from the earlier scenario where the onus was on the customer to prove victimhood.
If a reported fraud is proven, the bank is obligated to reimburse the entire amount to the customer. Online payments involve intermediary platforms such as payee bank, payer bank, and payment gateway, and the entire process must be encrypted with no customer data stored. In the event of fraud during this process, the bank is required to refund the amount to the customer.
Discussing banking frauds, the finance minister highlighted the severe threat they pose to both individual customers and financial institutions, risking financial losses and eroding public trust in the banking system. Nirmala Sitharaman instructed public sector banks (PSBs) to implement advanced fraud detection and prevention measures, particularly targeting large corporate frauds and protecting individual customers from deceitful practices.
Furthermore, to combat the banking fraud, during a recent meeting reviewing PSB performance, Finance Minister Nirmala Sitharaman directed PSBs and the National Asset Reconstruction Company Ltd (NARCL) to take essential steps for the acquisition of stressed accounts, emphasizing expedited resolutions. She advised regular meetings for a swift onboarding process of stressed accounts. Recognizing banking fraud as a critical menace, the finance minister urged banks to adopt advanced fraud prevention mechanisms and enhance customer awareness about secure banking practices.
Sitharaman stressed the importance of consumer education to safeguard against fraudulent calls and recommended efforts for the prompt identification and investigation of accounts flagged as fraudulent. She encouraged banks to focus on recovering funds from accounts declared as fraud or willful default and monitor early warning signals to prevent potential frauds. Recognizing the impact of legal actions, Sitharaman called for a performance review of legal representatives to ensure effective outcomes.
Addressing willful defaults, Sitharaman emphasized the strain they impose on banks’ financial health and the credit flow in the economy. She urged PSBs to adopt responsible lending practices, enhance due diligence before loan disbursement, and take swift legal action in case of defaults. Administrative action against complicit bank officials enabling fraud and wilful defaults was also stressed.
In the meeting, cybersecurity issues were discussed, and the finance minister reviewed banks’ preparedness to address cyber threats. Emphasizing customer data privacy, Sitharaman underscored the need for proactive cybersecurity measures and stringent security protocols to protect financial systems from cyber-attacks. She urged banks to adapt to the evolving digital landscape while maintaining the integrity of domestic financial systems.
Additionally, Sitharaman highlighted the importance of deposit mobilization, urging PSBs to innovate and offer attractive deposit schemes to enhance their deposit base, facilitating increased credit extension.
Conclusion
The decade-long trajectory of banking frauds, as revealed by the RBI data, points to a substantial increase, creating an alarming scenario for financial institutions and individual customers alike. The fiscal year 2021-22 witnessed a staggering 10-fold rise in the value of reported frauds, reaching ₹45,598 crore. While this surge raises concerns, it’s noteworthy that the total value of frauds has seen a decline in the past two years.
The Finance Minister’s proactive stance in combating banking frauds is commendable, emphasizing the adoption of advanced prevention mechanisms and heightened consumer awareness. The directive to public sector banks (PSBs) to expedite the resolution of stressed accounts demonstrates a commitment to addressing the root causes of financial malfeasance.
The shift in liability dynamics, placing the onus on banks to prove customer non-complicity in fraud, reflects a positive change in customer protection. However, this necessitates banks to fortify their security measures and adhere to stringent protocols to safeguard against cyber threats.
As the banking landscape continues to evolve in the digital age, the Finance Minister’s call for adaptive cybersecurity measures is crucial. Ensuring the privacy of customer data and fortifying systems against potential vulnerabilities are paramount to maintaining public trust in the financial system.
In conclusion, the battle against banking fraud requires a multi-faceted approach involving technological innovation, regulatory diligence, and customer education. The collaborative efforts of financial institutions, regulatory bodies, and customers are imperative to fortify the financial ecosystem against fraudulent activities and secure the trust that underpins it.
