Banking Frauds- a threat to the Indian Economy


In recent times, banks and lending institutions have been receiving a bulk of cases of loan defaulters and credit fraud for many years. It has become more challenging for the banks to recover the debts in such cases. Digitalization has also given a high rise to fraudulent activities as diligence criteria are not appropriate with the fast-changing technologies and their misuse. According to the Reserve Bank of India, fraud refers to a deliberate act on omission or commission by any person done during the course of banking transaction or in the books of accounts prepared manually or computer system which resulted in wrongful gain to any person and causing monetary loss to the bank.

Financial Institutions have to work efficiently to curb financial losses that happen due to calculation error onboarding of customer accounts. In the financial Stability Report by RBI, the banking sector has received around 6500 cases of fraud having a monetary value of Rs. 30000 Crores in the last fiscal year.

What are the challenges faced in Banking Sector?

Banks are considered the backbone of the Indian economy. Let’s have a look at the challenges faced by the banking sectors in recent years:

  • One of the giant risks that can be noted is the rise in bad loans. These loans are not repaid back by the borrower and it is a total loss for the banks. The public sector banks have 70% control of all banking assets in India and keep accounts of around USD 150 billion to bad loans. Hence, this is known as Non-Performing Assets for the banks.
  • The advancement of technology has imposed a lot of pressure on the banks to cope up. Technology up-gradation with the time of the techniques has become a necessity so privacy and safety policies of banks shall also be taken care of.
  • The banking sectors are also facing a revenue issue like a slowdown in the balance sheet growth in recent times. In the case of Public Sector Banks, only has 42% share in overall profits.
  • Numerous scandals in the banking sector have reduced investor confidence in the functioning of the company. Mostly, the banks have tried to keep aside money for the future non-performing assets. Such provision affects the bank in long term and reduces the ability of the bank to survive financial pressures.

What are the measures taken to control Bank frauds?

There is a number of measures taken to control and prevent frauds in banks as follows:

  • The Government has published a framework for timely detection, reporting, investigation, etc. relating to large value bank frauds to Public Sector Banks that provides:
  • Any amount received of more than Rs. 50 Crore, and can be called as Non-Performing Assets and can be examined by banks from the elevation of possible fraud and report placed before the bank’s working Committee for review of Non-Performing Assets on the proper investigation.
  • The investigation shall be initiated for wilful default upon the reporting of fraud to RBI,
  • Fugitive Economic Offenders Act, 2018 has been enforced to detain the economic offenders from escaping the process of Indian Law by remaining outside the jurisdiction of Indian Courts. This act provides with the provisions for attachment of property of fugitive economic offender and confiscation of such offender’s property and no legal remedy of the offender from defending any claim.
  • The Central Fraud Registry (CFR) has been constituted by the RBI, keeping in mind fraud monitoring returns that are filed by the banks and financial institutions to search the online central database for bank use.
  • For ensuring the auditing standards and quality of audits Government has established the National Financial Reporting Authority for independent control.
  • Furthermore, Public Sector Banks are instructed to ensure implementation in a specified time as per the procedure prescribed by the RBI for building a strong operating environment in banks.
  • The photograph and identity of the wilful defaulters shall be published as per the terms of RBI and board approval.
  • The imposition of RBI guidelines to prevent skimming of ATM/debit/credit cards and
  • Ensuring legal audit of the title documents in regard to the large value of loan accounts.
  • The details such as the passport of the promoters/directors and other authorized signatories for availing the loan up to 50 Crore shall be submitted with the RBI.


It can be noted that, to achieve the goal of faster yet inclusive growth of the economy, the Government and banking sector to undertake a comprehensive check on the existing way of working and procedure. The banking sector shall have an adaptive approach for implementation across the globe.

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