Banking frauds in India have not only grown in numbers but also in size. According to RBI annual report 2019-20, the amount involved in banking frauds grew 2.5 times to Rs 1.85 lakh crore in 2019-20 compared with Rs 71,500 crore in 2018-19.
The number of frauds also rose 28% from 6,799 cases in 2018-19 to 8,707 in 2019-20. Public sector banks were the worst hit as they accounted for Rs 1.48 lakh crore or 80% of the amount involved in frauds during the year. Private sector banks have been more vigilant in this regard as they accounted for 18.4% of the amount involved in frauds even though 35% of frauds were reported from private sector banks. The public sector banks reported for 50% of the fraud cases while foreign banks reported just 11%.
According to fraud analysis in the RBI annual report, 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.
Frauds related to bank loans saw a sharp jump in 2019-20 as such frauds accounted for 98% of the total frauds in terms of value of amount involved compared to 90% in 2018-19. Incidents of frauds relating to other areas of banking like off-balance sheet and forex transactions, etc, fell in 2019-20 vis-a-vis the previous year.
The report points out that banks continue to take a long time to detect such frauds. "While the frauds framework focuses on prevention, early detection and prompt reporting, the average lag in detection of frauds remains long. The average lag between the date of occurrence of frauds and their detection by banks/ FIs was 24 months during 2019-20. In large frauds of Rs 100 crore and more, however, the average lag was 63 months. The sanction of the credit facility in many of these accounts was much older," says the report.
The report cites 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 as the reasons for delay in detection of frauds.
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