Banking Sector Faces Surge in Fraud Cases, But Losses Plunge – RBI Report Reveals Startling Trends

NEW DELHI: The Reserve Bank of India (RBI) latest Annual Report for the year 2022-23 revealed a concerning rise in the number of frauds, with 13,530 cases reported compared to the previous year.

However, there was a significant reduction in the amount involved, which nearly halved to Rs 30,252 crore. The report highlighted the prevalence of frauds in the digital payments category in terms of numbers, while the loan portfolio took the lead in terms of the value of frauds.

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Over the past three years, private sector banks reported the highest number of fraud cases. However, public sector banks continued to contribute the most significant amount to the overall fraud figures in the year 2022-23. The data encompassed fraud cases involving Rs 1 lakh and above that were reported during the three-year period.

Comparing the data from the previous two years, the report indicated a substantial decline in the amount involved in reported frauds. The total amount involved in frauds during 2021-22 witnessed a 55% reduction compared to the previous year, and this trend continued in 2022-23, with a 49% decrease from 2021-22.

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While private sector banks reported a higher number of frauds in the small value card/internet category, public sector banks encountered frauds primarily in their loan portfolios. It is noteworthy that the reported frauds in a particular year might have transpired several years earlier before detection.

Analyzing the vintage of reported frauds during 2021-22 and 2022-23, the report identified a significant time-lag between the occurrence and detection of fraud. In terms of value, a staggering 93.7% of the frauds reported in 2021-22 originated from previous financial years. Similarly, 94.5% of the frauds reported in 2022-23 by value were carryovers from earlier financial years.

During the fiscal year 2022-23, public sector banks reported 3,405 frauds involving Rs 21,125 crore, while private banks reported 8,932 cases involving Rs 8,727 crore. The remaining cases were attributed to foreign banks, financial institutions, small finance banks, and payment banks.

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Notably, a significant portion of the total amount involved, approximately 95% or Rs 28,792 crore, was associated with frauds related to loans and advances. However, the reported amounts do not directly reflect the actual losses incurred, as recoveries can mitigate the losses. Moreover, it should be noted that the entire amount involved is not necessarily diverted.

The RBI acknowledged the need for stronger measures to combat fraud in the banking sector. The central bank assured that additional steps would be taken to ensure the integrity and security of the financial system.

Commenting on increasing banking fraud and money lost due to cyber crime, Future Crime (FCRF) researchers suggest multiple compliance and best practices that include strengthening banking security. Banks must invest in robust cybersecurity systems and technologies to protect customer data and financial transactions. This includes implementing multi-factor authentication, encryption, intrusion detection systems, and regular security audits.

FCRF researchers also highlighted the need of having an enhance customer awareness campaigns, implement real-time monitoring, collaborate and share information industry peers, law enforcement agencies, and cybersecurity experts and prompt incident response to mitigate such frauds and losses.

Important Pointers:

• Number of frauds in the banking sector rose to 13,530 in 2022-23, but the amount involved nearly halved at Rs 30,252 crore.
• Digital payment frauds dominated in terms of numbers, while loan portfolio frauds were more significant in terms of value.
• Private sector banks reported the maximum number of frauds, while public sector banks contributed the most to the fraud amount in 2022-23.
• There was a 55% decline in the amount involved in reported frauds during 2021-22 compared to the previous year.
• Public sector banks reported 3,405 frauds involving Rs 21,125 crore in 2022-23, while private banks reported 8,932 cases involving Rs 8,727 crore.
• Around 95% of the total amount involved was reported in cases related to loans and advances.
• The RBI pledged to take further steps to address fraud in the banking sector.

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