Bank frauds in India: A soaring trend

According to an analysis of frauds recorded across banks, the number of fraud cases filed in FY24 increased by approximately 300 percent from 9,046 in FY22. However, the sum involved has decreased from Rs 45,358 crore to Rs 13,930 crore, according to the central bank's annual report for fiscal year 24 released on Thursday.

Every year, the amount involved in total frauds reported decreased by 46.7% during fiscal year 24.

The numbers speak

The RBI stated that, while private sector banks reported the most frauds in the recent three years, public sector banks contributed the most to the fraud total. According to the RBI, digital payments (card payments and internet) were the most common source of fraud. 

According to the RBI, digital payments (card payments and internet) were the most common source of fraud. However, in terms of value, the frauds were concentrated in the loan portfolio.

While small value card/internet frauds accounted for the majority of frauds recorded by private sector banks, RBI investigation revealed that frauds in public sector banks were primarily in loan portfolios.

The number of scams involving card and internet payments jumped from 3,596 in FY22 to 29,082 in FY24. In terms of value, it rose from Rs 155 crore in FY22 to Rs 1,457 crore.

Observing the time lag

In an assessment of cases reported in FY23 and FY24, the RBI discovered a significant time lag between the date a fraud occurred and its identification.

According to the RBI, the amount engaged in frauds from prior fiscal years accounted for 94.0 percent of the frauds reported in FY23 in terms of value. Approximately 89% of the frauds recorded in FY24 by value occurred in previous fiscal years.

Factors contributing to the surge

• Technological advancements: The digital revolution has transformed banking, making transactions faster and more accessible. However, it has also exposed vulnerabilities. Cybercriminals exploit weak security measures, phishing attacks, and identity theft to siphon off funds.
• Lax oversight: Despite regulatory frameworks, some banks struggle to implement robust risk management practices. Inadequate internal controls and complacency contribute to the rising fraud numbers.
• Insider threats: Employees with access to sensitive information can be both an asset and a liability. Insider fraud—whether intentional or due to negligence—poses a significant risk.
• Complex financial products: As financial products become more intricate, so do the opportunities for fraud. From complex derivatives to shadow banking, the landscape is ripe for exploitation.

Mitigating the risk

• Enhanced security measures: Banks must invest in cutting-edge cybersecurity tools. Multi-factor authentication, real-time monitoring, and AI-driven anomaly detection can help thwart fraud attempts.
• Training and awareness: Educating bank staff and customers about fraud risks is crucial. Regular workshops, simulated phishing exercises, and awareness campaigns can empower everyone to stay vigilant.
• Collaboration: Banks, regulators, and law enforcement agencies must collaborate closely. Sharing threat intelligence and best practices can strengthen the collective defense against fraud.
• Strengthening legal frameworks: Stricter penalties and faster legal proceedings can act as deterrents. Swift action against fraudsters sends a strong message.