Bank Frauds Double Up in FY20, Costing worth Rs 1.85 Trillion: RBI Study

The annual report released by the Reserve Bank of India shares some startling bank fraud numbers. According to the report major banking frauds in financial year 2019-20 added up to Rs 1.85 trillion which is more than double of the cases reported in the previous year.

According to the report the bank fraud cases increased 159% (Rs 1.85 lakh crore) in the last financial year. While the cost of bank frauds in FY 2018-19 was Rs 71,543 crore.

The size of frauds escalated at a very sharp rate. The rise in volume of frauds was 28% by volume to 8,707 cases in 2019-20 from 6,799 instances in the previous year.

It is worth noting here that the data released by RBI only includes frauds of Rs 1 lakh and above. That shows there has been a rapid increase in large ticket frauds.

The banks have however, showed a decline in reported frauds in the June quarter of current financial year. The overall value involved in frauds during the quarter declined 32% year-on-year at Rs 28,843 crore, as against Rs 42,228 crore in the same quarter last year.

Also 80% of the total value of frauds belonged to public sector banks, while private sector banks reported 18.4% of frauds in 2019-20, according to RNI’s annual report.

These frauds predominantly occurred in loan portfolio, both in volume and value. As such when a loan account is declared as fraud, banks sets aside 100% of the outstanding as provision, either in one go or quarter wise.

RBI report also read: 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.

There was a marked delay in the detection of frauds. On an average, there was a lag of 24 months in detection of frauds for FY 2019-20 and very large frauds constituting Rs 100 crore and above, took as much as 63 months to report.

Reasons for delay in recognising fraud- as pointed by regulator

• Weak implementation of early warning signals by banks
• non-detection of early warning signals during internal audits
• non-cooperation of borrowers during forensic audits
• inconclusive audit reports
• lack of decision making in joint lenders’ meetings account

Now the RBI will study some large frauds cases to recognise the reasons for delayed identification of these frauds.

The regulator has already set up Advisory Board For Banking Frauds (ABBF) in consultation with the Central Vigilance Commission (CVC). It is working to revamp & strengthen fraud detection & audit function, with timely and conclusive forensic audits for borrower accounts under scrutiny.