Banking frauds see 4-fold spike during Modi rule

The country has witnessed a four-fold jump in the amount of money involved in banking frauds since the Narendra Modi-led National Democratic Alliance took charge at the Centre in May 2014.

According to data released by the Reserve Bank of India (RBI) in its Financial Stability Report (FSR) on Monday, the total amount of money involved in banking frauds across all Indian banks and financial institutions over the last five years amounts to Rs 1.34 lakh crore. Of this, close to 80% of all frauds pertain to bank credit.

The year 2017-18 witnessed the highest amount of money lost to frauds at Rs 41,167 crore, which is 4.04 times more than the Rs 10,171 crore committed in 2013-14, a year prior to Modi taking charge.

The report shows that Rs 30,420 crore worth banking frauds were committed during the first six months of the current financial year (2018-19). Many experts believe that this year, the total value of all banking frauds will surpass last year’s number.

Credit-related frauds amounted to Rs 1.06 lakh crore out of Rs 1.34 lakh crore worth banking frauds committed during the last four years.

In fact, the ticket size of credit frauds in the past four years is significantly higher than the non-credit frauds witnessed by banks. Banks lost Rs 9.6 crore in each credit fraud, which is 4.5 times more than Rs 2.2 crore lost on each non-credit banking fraud. Out of a total 23,741 banking frauds reported in the past four years, 11,016 are related to credit frauds.

An analysis of RBI data shows that the amount involved in banking frauds has significantly gone up since September 2017. In terms of the relative share of frauds, public sector banks (PSBs) continue to dominate.
“The predominance of frauds among PSBs points to possible inadequacy of risk mitigation processes. The assessment and inculcation of appropriate Risk Culture in an organisational milieu assumes importance in this regard,” the RBI said.

The fraud committed by the uncle-nephew duo of Nirav Modi and Mehul Choksi, diamond merchants, has taken a huge toll on the frauds in the banking sector. In 2017-18, the duo alone accounted for Rs 13,500 crore.
Meanwhile, the apex bank has called for changes in the governance of banks. “Operational risks in the banking sector have assumed significance of late, calling for reforms in governance and Board oversight structures and overhaul of the extant risk culture in banks,” RBI said in its report.