The latest annual report of the RBI paints a
very grim picture as far as bank fraud cases are concerned. The amount involved
in fraud cases detected in a particular year has increased by over 35 times
between 2009-10 and 2018-19.

RBI has recently released its annual report for the year 2018-19. Among other things, one of the highlights from the annual report is the increase in the number of cases detected relating to banking fraud.

RBI annual report observes that for the year 2018-19, the number of bank fraud cases detected has increased by 15% and the amount involved in bank fraud cases has increased by 73.8%. Is this a continuing trend over the years or a one-off increase for the year 2018-19?

How does RBI count the bank fraud data?

It has to be noted that the numbers in the RBI report are cases where the amount involved in fraud is ₹ 1 lakh or more. It also has to be noted that the number of fraud cases in the RBI report are those that are detected & reported in that particular year and not necessarily the ones committed in that year.  This is also mentioned in an answer provided in the Lok Sabha by the government where it said that  ‘fraud data is by the year of reporting and not the year of occurrence of the fraud or sanction of loan, Letter of Undertaking etc., which may be of an earlier period’. One of the other answers also goes onto mention that ‘it is not possible from this data to arrive at year-wise increase in banking frauds’.

The Amount involved in fraud cases has
increased over the last decade

As per RBI data, the number of cases identified as
bank fraud has increased over the years. For the year 2009-10, the total number
of cases recorded was 4,669 and in the year 2018-19 this number is 6801.

The number of cases reported has consistently
increased over the years, barring 2010-11 & 2011-12 where the number of
cases were 4534 and 4093, less than the 4669 cases recorded in 2009-10. Post
2011-12, the number of cases has seen a gradual increase every year.

The highest increase in the year on
year cases compared to previous year was observed over the last two years. In
2017-18 there was in increase by 840 cases and in 2018-19 there was an increase
of 885 cases compared to the previous year.

Apart from the increase in the number
of fraud cases, the exponential increase in the total value of the fraud cases
is matter of concern. In 2009-10, the total value of the frauds reported was ₹ 1,999 crores. The value of the bank
frauds reported for 2018-19 went up to ₹ 71,543 crores i.e. an increase by
approximately 35 times. While there has been a year on year increase in the
value of the bank frauds, the years of 2012-13, 2014-15, 2017-18 and 2018-19
have witnessed a substantial increase in the amounts involved in those frauds.

2015-16, is the only year where the amount
involved in fraud (₹ 18,699 crores)
was less than the previous year, 2014-15 when the amount involved in fraud was ₹ 19,455 crores.

Different numbers mentioned in the
Rajya Sabha

Responding to a question asked in the Rajya Sabha on 23 July 2019, the Finance minister
furnished the details of the banks frauds of select Scheduled Commercial Banks
and Financial Institutions.  The details
provided as per the answer is Rajya Sabha are given below. It has to be noted that
these numbers are very different from the data quoted in the RBI report because
the Rajya Sabha answer covers frauds committed in a particular year and not the
ones reported in that year.

Year No. of Cases of fraud committed Amount involved in ₹ crores
2009-10 4003 13672.46
2010-11 3530 14748.5
2011-12 3910 20210.86
2012-13 4504 24819.4
2013-14 4359 21542.03
2014-15 4269 23694.65
2015-16 4207 16779.42
2016-17 3927 25883.98
2017-18 4228 9866.23
2018-19 2836 6734.65

Public Sector Banks account for majority share of Banking fraud cases

As per the RBI annual report (2018-19), 
54.4%  of the bank  fraud cases in 2018-19 were reported in
public Sector Banks (PSBs), a total of 3,766 cases. The number of cases in PSBs
for the year 2017-18 was 2885.  As for
the amount involved in these cases, PSBs account for a whopping 90.2% of the
total amount involved in bank fraud cases for the year 2018-19. This amounts to
a total of ₹ 64,509 crores, an
increase in 68.6% over the amount involved in fraud cases in 2017-18 which was ₹ 38,261 crores.

The number of fraud cases in PSBs as reported
by RBI varies from the data provided in an answer in Lok Sabha on 01 July 2019, where it is specified as 1545. This
difference is again on account of the way of reporting these cases. The Lok
Sabha data is based on based on date of occurrence of the fraud and not the
date on which the fraud was reported.

The next highest number of fraud cases
in 2018-19 was reported by private sector banks followed by foreign banks.
There were 2,090 cases of fraud in private sector banks where the total amount
involved was ₹ 5,515 crores.
Comparatively in 2017-18, the total cases reported by private sector banks was
1,975 and the total amount involved was tune of ₹ 2,478 crores. In other words, the
amount involved in fraud cases in private banks increased by 122.5% in 2018-19
compared to 2017-18.

Although the number of fraud cases
involving foreign banks has come down in 2018-19 to 762 from 974 in 2017-18,
the amount involved in these cases has nearly tripled. In 2017-18, the total
amount was ₹ 256 crores while
it increased to ₹ 955 crores in
2018-19. During the same period, the amount of bank fraud in financial institutions
increased multifold with the amount for 2018-19 being ₹ 553 crores (28 cases) compared to ₹ 165 crores in 2017-18 (12 cases).

Exponential increase in the total amount
of fraud involving advances

For the year 2018-19, a total of 3606
cases of fraud were detected involving ‘advances’ extended compared to 2525
cases in 2017-18. The amount of fraud under ‘advances’ for 2018-19 is ₹ 64,548 crores compared to ₹ 22,558 crores in 2017-18.

Comparatively, the amount of fraud in
other areas of banking has reduced in 2018-19 compared to 2017-18.  The number of cases relating ‘Off-Balance
Sheet’ banking fraud in 2018-19 was 33 compared to 20 cases in 2017-18.
However, the value of the fraud was lower in 2018-19 with ₹ 5,538 crores compared to ₹ 16,288 crores in the previous year of
2017-18.

Similarly, the value of frauds under
‘foreign exchange transactions’ for 2018-19 is ₹ 695 crores compared to ₹ 1,426 crores in 2017-18.  Although the value is lower for ‘Card &
Internet related’ frauds, the number of cases recorded in this area are next
only to the cases related to ‘advances’ extended. The number of ‘card &
internet related’ fraud cases in 2017-18 was 2059 which came down to 1866 cases
in 2018-19.

Huge amount of delay in detecting fraud
cases

In
its annual report for 2018-19, RBI observed that the time lag
between the occurrence of fraud and the detection by the banks is almost 22
months. The report further observes that the lag time increases to 55 months in
cases where the value of the bank fraud is more than ₹100 Crores. The total amount of such
high value frauds reported in 2018-19 is ₹ 52,200 crores.

As per Central Vigilance Commission’s report in 2018,  a total of 689 complaints were received in banking
sector of which 591 cases were disposed and 98 cases are pending. Of the
pending cases, 32 cases are pending since more than 6 months. CVC has also compiled
an analysis in 2018 on top 100 frauds, which provides the details of the
various frauds including modus operandi, anomalies, loopholes etc. 

What is the government doing to reduce
the bank frauds?

In a response to a question in Rajya Sabha, the Finance Minister highlighted the
steps taken by the government to reduce  bank
frauds. As per the response, the following is reportedly being done by the
government.

  • A framework is put
    in place which allows for timely detection, reporting and investigation of
    large value bank frauds in Public Sector Banks.  The framework includes examining NPAs
    exceeding ₹ 50 crores for
    possible fraud, reporting to RBI, seeking report from Central Economic
    Intelligence Bureau in regard to the borrower related to NPA.
  • Enacting Fugitive Economic Offenders Act, 2018 to deter economic offenders from being
    outside jurisdiction of Indian courts.
  • Certified copy of
    passport of promoters/directors/authorized signatories of companies availing
    more than ₹ 50 crore to be
    obtained by Public Sector Banks.
  • RBI instructions
    to strictly adhere to the rotational transfer of officials and employees of
    PSBs.
  • National Financial Reporting Authority is established as an independent
    regulator to enforce auditing standards.
  • Bank accounts
    relating to 3.38 lakh inoperative companies were frozen.

While the government has listed down a
number of steps to prevent these frauds, the increasing amounts of fraud
reported every year is a cause for concern. It remains to be seen if the steps
taken by the government result in any reduction in the number of bank fraud
cases in the coming years.

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