By Gopabandhu Mohapatra

Let’s probe on what are the common causes behind the rising bank frauds?

Bank-fraud

The Indian banking sector has experienced considerable growth and changes since liberalisation of the economy in 1991. In the post-liberalisation the frequency, complexity and cost of banking frauds have increased manifold resulting in a very serious cause of concern for Reserve Bank of India (RBI).

Though the banking industry is generally well regulated and supervised, the sector suffers from its own set of challenges when it comes to ethical practices, financial distress and corporate governance. Yet the case of rising NPAs in the past few years across various scheduled commercial banks, especially public sector banks, has been a major cause of concern.

RBI, the regulator of banks in India, defines fraud as “A deliberate act of omission or commission by any person, carried out in the course of a banking transaction.” In the recent years, instances of financial fraud have regularly been reported in India.

Banks and select financial institutions have reported 44,016 cases of fraud in the last 11 years beginning with 2008-09 involving an amount of Rs 1,85,624 crore.

  • During 2008-09, a total of 4,372 cases were reported involving an amount of Rs 1,860.09 crore. In 2009-10, Rs 1,998.94 crore worth fraud was reported in 4,669 cases.
  • A total of 4,534 and 4,093 such cases were reported in 2010-11 and 2011-12 involving Rs3,815.76 crore and Rs 4,501.15 crore, respectively.
  • In the 2012-13 fiscal, 4,235 fraud cases involving Rs 8,590.86 crore were reported by banks as against 4,306 cases (involving Rs 10,170.81 crore) in 2013-14 and 4,639 cases (involving Rs 19,455.07 crore) in 2014-15.
  • As many as 4,693 and 5,076 cases of fraud were reported in 2015-16 and 2016-17 involving Rs 18,698.82 crore and Rs 23,933.85 crore, respectively, it said.
  • The year 2016-17 witnessed 3,927 cases of fraud involving amount of Rs 25,883.99 crore, which was the highest in the last 11 years, Minister of State for Finance Anurag Singh Thakur said in a written reply in the Rajya Sabha.
  • About 455 frauds cases in ICICI Bank, 429 in SBI, 244 in Standard Chartered Bank and 237 cases in HDFC Bank were caught in the first nine months of the year 2017.
  • A total of 5,916 such cases were reported by banks in 2017-18 involving Rs 41,167.03 crore and as many as 6,801 cases of fraud were reported by scheduled commercial banks and select financial institutions involving an amount of Rs 71,542.93 crore in the last fiscal, quoting data from the RBI. (increase of over 73% in the fraud amount).
  • A total of 2,480 cases of fraud involving a huge sum of Rs. 31,898.63 Crore rattled 18 PSBs in the first quarter of this fiscal –RTI query has revealed. SBI remained the biggest prey to frauds with 38% share.
  • According to an estimate, in the last three years, the bank scams of around Rs. 23,000 crore have taken place in the country, due to which the country’s banking system has suffered a lot. That is why the total NPA of the country’s banks has crossed the mark of 10 lac Cr in June 2018.

Of over 50,000 frauds that hit banks in India in the last 11 fiscal years, the ICICI Bank, State Bank of India (SBI) and HDFC Bank reported highest number of cases, according to an RBI data.

Of the total 53,334 cases of frauds reported during 2008-09 to 2018-19 fiscal years, involving a whopping Rs 2.05 lakh crore, a highest of 6,811 were reported by the ICICI Bank involving Rs 5,033.81 crore.

The state-run State Bank of India (SBI) reported 6,793 fraud cases involving Rs 23,734.74 crore followed by HDFC Banks.  2,497 such cases involving Rs 1,200.79 crore.

The Bank of Baroda reported 2,160 fraud cases (involving Rs 12,962.96 crore), Punjab National Bank 2,047 frauds (Rs 28,700.74 crore) and Axis Bank had 1,944 fraud cases involving RS 5,301.69 crore public money.

As many as 1,872 frauds involving Rs 12,358.2 crore was reported by Bank of India, 1,783 by Syndicate Bank (Rs 5830.85 crore) and Central Bank of India’s 1,613 cases involving Rs 9041.98 crore, the data shows.

money

IDBI Bank Ltd reported 1,264 fraud cases involving Rs 5978.96 crore, Standard Chartered Bank 1,263 cases involving Rs 1221.41 crore, Canara Bank 1,254 cases of Rs 5553.38 crore, Union Bank of India 1,244 frauds of Rs 11,830.74 crore and Kotak Mahindra 1,213 cases involving Rs 430.46 crore.

Indian Overseas Bank reported 1,115 frauds involving Rs 12,644.7 crore, while Oriental Bank of Commerce 1040 cases of Rs. 5,598.23 crore. The United Bank of India reported 944 cases of frauds involving Rs. 3052.34 crore, State Bank of Mysore 395 cases of Rs 742.31 crore, State Bank of Patiala 386 cases (Rs 1178.77 crore), Punjab and Sind Bank 276 cases (Rs 1154.89 crore), UCO Bank 1081 frauds (Rs. 7104.77 crore), Tamilnad Mercantile Bank Ltd 261 cases (Rs 493.92 crore) and Lakshmi Vilas Bank Ltd reported 259 frauds (Rs 862.64 crore).

A total of 274 cases of frauds were reported by the State Bank of Travancore involving Rs 694.61 crore, Jammu and Kashmir Bank Ltd reported 142 such cases of Rs 1639.9 crore, The Industrial Finance Corp of India had nine cases of Rs 671.66 crore, The Dhanalakshmi Bank Ltd 89 cases of Rs 410.93 crore and Vijaya Bank reported 639 cases involving Rs 1,748.9 crore.

Yes Bank Ltd reported 102 fraud cases involving Rs 311.96 crore and Paytm Payments Bank Limited reported two cases of Rs 0.02 crore (or Rs 2 lakh).

Some of the foreign banks operating in India also reported fraud cases worth crores during the last 11 fiscal years.American Express Banking Corporation reported 1,862 fraud cases of Rs 86.21 crore, Citi Bank 1,764 cases of Rs 578.09 crore, Hongkong and Shanghai Banking Corporation (HSBC) Ltd 1,173 frauds of Rs. 312.1 crore and The Royal Bank of Scotland Plc reported 216 frauds involving Rs 12.69 crore, the RBI data said.

Bank Fraud scam

Let’s have look on the biggest bank scams of India;

  1. Neerav Modi Bank scam: Rs 11,400 crore
  2. Vijay Mallya Bank Scam: Rs 9,432 crore
  3. Rotomac Pen Scam: Rs. 3,695 crore
  4. Kanishka Gold Pvt Scam: Rs. 824 crore
  5. R P Info Systems Bank Scam: Rs. 515.15 crore
  6. Simbhaoli Sugar Mills Bank Scam: Rs 200 crore.

The initial investigation in these cases has revealed involvement of not only mid-level employees, but also the senior most management as was reflected. A report says that bank employees were involved in most of the bank frauds. Data shows that more than 60 employees of State Bank of India, 49 employees of HDFC Bank, 35 employees of Axis Bank have been arrested in the fraud cases. After the Nirav Modi case, Punjab National Bank has suspended its 20 employees.

Now it is the need of the hour that the government should take some concrete actions to check the Crony capitalism and the intervention of the politicians in the functioning of the banks in India.

It can be concluded that the frauds are primarily due to lack of adequate supervision of top management, faulty incentive mechanisms for employees; collusion between the staff, corporate borrowers and third party agencies; weak regulatory system; lack of appropriate tools and technologies in place to detect early warning signals of a fraud; lack of awareness of bank employees and customers; and lack of coordination among different banks across India and abroad.

Moreover, the delays in the legal procedures for reporting and various loopholes in system can be considered some of the major reasons of frauds.

(Mr. Gopabandhu Mohapatra is a former Govt. Banker and is currently living in Bhubaneswar. He contributes articles on the core subjects of banking and finance to www.odisha.plus on a regular basis.)   

 

RELATED ARTICLESMORE FROM AUTHOR

2 COMMENTS

  1. The author has touched gracefully almost all the points of frauds in the bank.
    Though unhealthy competition among banks have a little contribution in the fraud,the major role of unethical practices played by
    a group of dishonest staff duly clouded by senior executives,there by the system of whistle blowing & proper governance is failed.So it is a fact that frauds are deliberate act of omissions/commission.
    Third party agencies are also partly responsible. Lack of timely punishment to the fraudulent or deceitful person also give courage to the entrants in the line.
    Intervention of politicians can not be fully ruled out in India but the topmost officials of the bank to adjudge between bonafides & malafides.
    The Govt /regulatory authorities have to be more vigilant and draw / frame clear cut rules to overcome frauds from the experience of past incidents of different financial institutions.

  2. Nice one.This articles discloses all the games going inside the banking sectors.a strict actions should be taken who are responsible for these banking scams.if this is how these banking scam goes on ,no person in this country believes their money to be safe in the hands of their respective banks.its not a good indication from the above article datas that its increasing with the passage of time.bank fraud is becoming a big business in todays world.

Comments are closed.