Clearly, it is much easier to defraud public sector banks than private sector ones in India and the figures speak volumes about the way the latter are run. According to the Reserve Bank of India’s (RBI) annual report for 2017-18, during 2017-18, public sector banks accounted for almost all (92.9 per cent) of the amount involved in frauds. While the private sector banks accounted for 6 per cent. With regards to the cumulative amount involved in frauds till March 31, 2018, PSBs accounted for around 85 per cent, while the private sector banks accounted for a little over 10 per cent.
Banking frauds in general are on the rise. According the central bank’s annual report, the number of cases on frauds reported by banks were generally hovering at around 4500 in the last 10 years before their increase to 5835 in 2017-18. The amount involved in frauds was increasing gradually, followed by a significant increase in 2017-18 to Rs 410 billion. “The quantum jump in the amount involved in frauds during 2017-18 was on account of a large value fraud committed in gems and jewellery sector, mainly affecting one public sector bank (PSB),” the central bank reasoned.
Number and amount involved in fraud cases (of Rs 1 lakh and above) reported by banks during 2008-18
At the system level, frauds in loans, by amount, accounted for more than 75 per cent of frauds involving amounts of Rs 0.1 million and above, while frauds in deposit accounts were at just over 3 per cent.
Composition of outstanding banking frauds
Within the loan category of frauds, PSBs accounted for a major share (87 per cent) followed by the private sector banks (11 per cent).
The share of public sector banks in frauds relating to ‘off-balance sheet items’ such as Letter of Credit (LCs), LoU, and Letter of Acceptance was even higher at 96 per cent. New private sector banks accounted for more than 20 per cent of the frauds related to ‘cash/cheques/clearing’ and ‘foreign exchange transactions’. New private sector and foreign banks accounted for 36 per cent each of all cyber frauds reported in debit, credit and ATM cards, among others.
Mumbai (Greater Mumbai), Kolkata and Delhi were the top three cities in reporting of bank frauds through ‘cheating and forgery’.
RBI’s annual report stated that due to the divergences in asset classification and provisioning in the credit portfolio of banks as well as the rising incidence of frauds, an Expert Committee under the chairmanship of Y.H. Malegam had been constituted to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the Reserve Bank’s supervisory assessment, and the steps needed to prevent it; factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it; and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds. The recommendations of the committee will be carried forward for implementation.
Further, to strengthen the cyber security posture of Indian banks, focused and theme-based IT examinations are planned during 2018-19. Targeted scrutiny, as and when required, would also be conducted for appropriate policy and supervisory intervention, said the annual report.