The total cases of frauds (involving Rs1 lakh and above) reported by banks and financial institutions (FIs) shot up by 28 per cent by volume and 159 per cent by value during 2019-20 despite the Reserve Bank of India (RBI) tightening the supervision and vigilance. While there were 6,799 frauds involving Rs 71,543 crore as of March 2019, the number of frauds jumped to 8,707 involving a whopping Rs 1,85,644 crore, says the RBI’s Annual Report.
According to the RBI, a major chunk of the frauds were reported on the advances front with 4,610 cases for Rs 1,82,051 crore, which works to around 98 per cent of the total value of frauds. Public sector banks topped the fraud table with 4,413 cases involving Rs 1,48,400 crore. Private banks reported 3,066 frauds involving Rs 34,211 crore.
However, the RBI indicated that the frauds registered during 2019-20 actually occurred in the previous years. The average lag between the date of occurrence of frauds and their detection by banks and FIs was 24 months during 2019-20. In large frauds — Rs 100 crore and above — the average lag was 63 months. The sanction of the credit facility in many of these accounts was much older.
Reasons for delay in detection
Weak implementation of 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 delay in detection of frauds.
Frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value, the RBI said. There was a concentration of large value frauds, with the top 50 credit-related frauds constituting 76 per cent of the total amount reported as frauds during 2019-20. However, the RBI said the number of frauds and the amount showed a downward trend in the April-June period of 2020-21.
Incidents relating to other areas of banking — off-balance sheet and forex transactions — fell in 2019-20 when compared to the previous year, the RBI said. It said 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.
The RBI is now engaged in interlinking various databases and information systems to improve fraud monitoring and detection.
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