Be careful! Bank frauds more than double in FY20, RBI to conduct study

“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,” RBI said.

The total value of bank frauds more than doubled in 2019-20. Total cases of frauds have increased 159% by value to Rs 1.85 lakh crore, compared to Rs 71,543 crore in 2018-19.

Similarly, the frauds increased 28% by volume to 8,707 cases in 2019-20, compared to 6,799 instances in the previous year, as per data released by Reserve Bank of India (RBI) in its annual report. However, the banks have shown a decline of 32% year-on-year (y-o-y) in the total value of frauds during June quarter of the current financial year. The data released by RBI only includes frauds of Rs 1 lakh and above.

If an account is declared as fraud, banks need to set aside 100% of the outstanding loans as provisions, either in one go or spread over four quarters, according to RBI. According to data shared by the central bank, 80% of the total value of frauds were reported by public sector banks, followed by private sector banks at 18.4% during 2019-20.

RBI said that frauds have been predominantly occurring in the loan portfolio, both in terms of volume and value.

“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,” RBI said.

The central bank highlighted the delay in the early detection of frauds. The average lag between the date of occurrence of frauds and their detection was 24 months during 2019-20. In large frauds of Rs 100 crore and above, however, the average lag was 63 months. The regulator gave various reasons for delay in recognising fraud.

“The weak implementation of early warning signals (EWS) by banks, non-detection of EWS during internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports and lack of decision making in joint lenders’ meetings account for delay in detection of frauds,” RBI said.

The regulator is set to conduct a study on a few large frauds to recognise the reason behind delay in identifying these frauds.

According to RBI, the EWS mechanism is getting revamped alongside strengthening of concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny. The regulator had set up the advisory board for banking frauds (ABBF) in consultation with the central vigilance commission (CVC).

The banks have however, seen a decline in the number of reported frauds in the June quarter of current financial year. The total value involved in frauds during June quarter declined 32% year-on-year (y-o-y) at Rs 28,843 crore, compared to Rs 42,228 crore in the April-June period of 2019.