As banks rush to digitize everything from payments to onboarding, new data from the Reserve Bank of India reveals a counterintuitive shift: fewer fraud cases overall, but far bigger losses and a quiet retreat by lenders from frictionless, fully online account opening.
Fewer Cases, Far Bigger Losses
India’s banking system recorded a sharp drop in the number of fraud cases in the last financial year, but the money involved surged dramatically.
According to the Reserve Bank of India’s annual report for FY25, banks reported 23,953 fraud incidents of ₹1 lakh and above a decline of 34 percent from the previous year. The value of those frauds, however, nearly tripled to ₹36,014 crore. The figures include cases reported during the year even if the underlying fraud occurred earlier, reflecting the lagged nature of detection in large banking scandals.
The data points to a system that is catching fewer, but much larger, breaches particularly in areas where credit decisions, identity verification and oversight are weakest.
Private Banks See More Frauds, Public Banks Bear the Cost
A closer look at the RBI’s breakdown reveals a stark divide between private and public-sector lenders. Private-sector banks accounted for the highest number of fraud cases 14,233 incidents, or nearly 60 percent of all reported cases. Their total losses, however, stood at ₹10,088 crore.
Public-sector banks, by contrast, reported far fewer cases 6,935 but absorbed the bulk of the financial damage. They accounted for ₹25,667 crore in losses, or more than 71 percent of the total amount involved.
The RBI noted that frauds in private banks were concentrated largely in digital payments, while public-sector banks continued to see major losses in loan portfolios, a pattern that has persisted for years and reflects differences in customer profiles, lending practices and risk controls.
Digital Payments Are Frequent, Loans Are Costly
Digital payments including card and internet transactions emerged as the most common channel for fraud. Banks reported 13,516 such cases in FY25, representing more than 56 percent of all incidents. Yet these cases involved relatively modest sums, totaling about ₹520 crore.
The real financial damage lay elsewhere. Fraud in the loans and advances segment accounted for 7,950 cases but made up over 92 percent of the total value involved ₹33,148 crore. These figures highlight how large-ticket loan frauds, though fewer in number, continue to dominate the banking system’s risk landscape.
The contrast underscores a growing imbalance: while everyday digital fraud affects many customers, systemic weaknesses in credit appraisal and monitoring expose banks particularly state-owned ones to outsized losses.
Banks Pull Back From Instant Digital Onboarding
Against this backdrop, several large lenders are rethinking the push toward instant, fully digital account opening. ICICI Bank has discontinued its instant online account-opening service altogether, retaining a digital route only for salary accounts. Other customers must now go through an assisted model, in which a branch executive visits them to complete documentation digitally.
HDFC Bank has said it continues to onboard customers digitally but is strengthening safeguards. Bankers told The Economic Times that State Bank of India, Bank of India and Bank of Baroda have also paused fully digital onboarding, reverting to physical checks and in-person verification.
The shift follows recent penalties imposed by the RBI on multiple banks for weak Know Your Customer (KYC) compliance during online onboarding. It also reflects growing concern over identity theft and mule accounts often used to funnel proceeds of cybercrime which have surged alongside digital payments.
