Bank Frauds More Than Double In FY20

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Frauds reported by banks of ₹100,000 and above have more than doubled in value to ₹1.85 trillion in FY20.
The number of such cases increased by 28% in the same period

When the fraud took place?

The date of occurrence of these frauds are spread over several previous years and are accounted for in the financial year when they are reported.
Banks, on an average, took two years to detect fraud after it had occurred.
The delay was even greater for large frauds of ₹100 crore and above with an average lag of 5 years.

A majority of these frauds are in loan portfolios of banks, both in termsof number and value.
Frauds in loans constituted 98% of the total frauds or at ₹1.82 trillion

There was a concentration of large value frauds.
The top 50 credit-related frauds constituting 76% of the total amount reported as frauds during 2019-20.

Public sector banks accounted for 80% of the ₹1.85 trillion reported as frauds in FY20.
Followed by private sector banks at 18%.

Big loan advance frauds happen as bank officials collude with borrowers and sometimes even with officials of third parties such as advocates and chartered accountants.
Post loan sanction, the monitoring is weaker than at private banks due to lack of expertise and modern tech resources.
Officers retire before they can be booked for fraud.
Weak selection process and lower pay than at private banks are among key reasons.
PSB staff are not offered appropriate incentives to prevent or detect frauds early.

The central bank has been trying to reduce the gap between the occurrence of a fraud and its
While the frauds framework focuses on prevention, early detection and prompt reporting,
The average lag in detection of frauds remains long.

Weak implementation of early warning signals (EWS) by banks.
Non-detection of EWS during internal audits.
Non-cooperation of borrowers during forensic audits.
Inconclusive audit reports.
Lack of decision making in joint lenders’ meetings
According to RBI,
The EWS mechanism is getting revamped alongside strengthening of the concurrent audit function,
With timely and conclusive forensic audits of borrower accounts under scrutiny.

In this regard, it had set up the advisory board for banking frauds (ABBF)
In consultation with the CVC.
The ABBF functions as the first level of examination of all fraud cases above 50 crores