The Reserve Bank of India (RBI) report reveals a significant 28% rise in fraud incidents and an eight-fold increase in the financial impact during 2023-24. These frauds pose critical challenges, including reputational, operational, and financial risks, alongside the erosion of customer trust in the banking system.

Trends in Internet and Card-Related Frauds

Internet and card-related frauds have emerged as the most prevalent, accounting for:

• 44.7% of Total Fraud Amounts: The highest share of financial losses.
• 85.3% of Reported Cases: A majority of the incidents in 2023-24.

Private sector banks were implicated in 67.1% of these cases, while public sector banks incurred the largest financial losses, especially in card and online fraud categories.

In response to the alarming increase in fraud, regulatory penalties for banks more than doubled in 2023-24, reaching ₹86.1 crore. Key contributors included:

• Public and Private Sector Banks: Accounted for the majority of penalties.
• Cooperative Banks: Witnessed a decline in regulatory penalties.

Addressing Fraud in Digital Lending

The RBI highlighted fraudulent schemes in the digital lending space, where perpetrators falsely claim associations with regulated entities. To combat this, the central bank is developing a public repository of verified digital lending apps.

“Many cases of digital fraud stem from social engineering attacks, but there is a growing trend of using mule accounts to facilitate these frauds,” the RBI noted in its report.

Enhancing Fraud Prevention Measures

The report underscored the need for banks to strengthen their fraud prevention mechanisms, particularly in:

• Customer Onboarding: Enhancing verification processes to detect fraudulent accounts.
• Transaction Monitoring: Improving systems to identify and prevent suspicious activities.

“This exposes banks not only to serious financial and operational risks but also to reputational risks. Banks, therefore, need to strengthen their customer onboarding and transaction monitoring systems to monitor unscrupulous activities,” the RBI emphasized.

Collaborative Efforts to Tackle Fraud

To curb systemic fraud, the RBI is collaborating with law enforcement agencies (LEAs) through:

• Enhanced coordination and information sharing.
• Improved transaction monitoring systems.
• Best practices to control mule accounts and prevent digital fraud.

The RBI’s initiatives aim to fortify the financial system’s resilience against these evolving threats, ensuring greater security and trust in the banking sector.