Fraud cases reported by banks and financial institutions (FIs) have increased a whopping 159% in value and 28% in volume during 2019-20, the Reserve Bank of India revealed in its annual report for FY20. According to data shared by RBI in its annual report, there were 8,707 frauds reported in FY20 amounting to Rs 1,85,644 crore, as against 6,799 frauds in FY19 amounting to Rs 71,54 crore. This shows that the amount involved in bank frauds has more than doubled as compared to the previous fiscal. Between April-June of 2020, there were a total of 1,558 frauds reported amounting to Rs 28,843 crore.
These are frauds involving amounts of Rs 1 lakh and above. However, what is striking is that while the number of frauds has been relatively decreasing over the years, the amount involved in these frauds has significantly increased.
Public sector banks reported 4,413 frauds in FY20 amounting to a whopping Rs 1,48,400 crore, as compared to FY19, where 3,568 frauds involving Rs 63,283 crore was reported.
RBI said that frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value.
“There was a concentration of large value frauds, with the top fifty credit-related frauds constituting 76% of the total amount reported as frauds during 2019-20. Incidents relating to other areas of banking, viz., off-balance sheet and forex transactions, fell in 2019-20 vis-à-vis the previous year,” RBI stated.
RBI observed that the average lag in detection of frauds is still long. The average lag between the date of occurrence of frauds and their detection by banks or FIs was 24 months during 2019-20. In large frauds involving Rs 100 crore and above, the average lag was as much as 63 months. The sanction of the credit facility in many of these accounts was much older.
RBI says that 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 and lack of decision making in Joint Lenders' meetings account for delay in detection of frauds.
However, the EWS mechanism is getting revamped alongside strengthening of the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny, RBI stated.
In a bid to investigate frauds, the RBI created the Advisory Board for Banking Frauds (ABBF) in consultation with the Central Vigilance Commission (CVC). The ABBF functions as the first level of examination of all large value fraud cases before recommendations/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.
Meanwhile, counterfeit notes of Rs 10 denomination increased by 144.6% in FY20, as compared to last year, while Rs 200 counterfeit notes increased by a whopping 151.2%.