RBI Annual Report 2019-20: Bank Frauds More Than Double
The Reserve Bank of India Headquarters in New Delhi (Photographer: Kuni Takahashi/Bloomberg)

RBI Annual Report 2019-20: Bank Frauds More Than Double

Bank frauds jumped more than twofold in the previous fiscal on delayed detection even as the Reserve Bank of India mandated implementation of early warning signals by lenders.

Bank frauds worth more than Rs 1.85 lakh crore were reported in the year ended June 2020 compared with over Rs 71,500 crore in the previous fiscal, according to the RBI’s annual report for 2019-20.

“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 50 credit-related frauds constituting 76% of the total amount reported as frauds during 2019-20,” the annual report said.

Public sector banks—that witnessed a 234% year-on-year rise in fraud cases—accounted for 80% of the total such reported instances. Private banks, which reported a more than 500% rise, formed over 18% of the total fraud cases.

“Weak implementation of EWS (early warning signals) 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 a delay in detection of frauds,” the RBI said.

For instance, the average lag between the date of occurrence of a fraud and its detection by the bank or financial institution was 24 months, the annual report said. Whereas in the case of large frauds, where the amount involved was more than Rs 100 crore, the average lag was 63 months, it said. That compares with the average lag of 22 months, and 55 months for large value frauds in the previous fiscal.

Now, the RBI said it’s looking at revamping the EWS mechanism—introduced in 2015 for banks to discover, monitor and capture various signals denoting potential risks or vulnerabilities in borrower accounts.

A Snapshot

  • Advances or lending operations constitute 98% of all fraud cases, as reported by banks.
  • The share of frauds involving other areas like off-balance sheet and forex transactions declined during the last year.
  • Card and internet frauds, though constituting a very small amount of the total frauds, increased 174% to Rs 195 crore in 2019-20 from Rs 71 crore in the previous year.
  • Deposit related frauds increased 316% to Rs 616 crore in 2019-20 from Rs 148 crore a year ago.
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