December 31, 2018:
Frauds have emerged as the “most serious concern” in managing risk in the Indian banking system, rising 72% in their financial value in 2017-’18, a report released by the Reserve Bank of India.
The fraud amount in 2016-’17 was ₹23,934 crore, but rose to ₹41,168 crore the next year. The value has increased four times since 2013-’14.
The sharp jump in 2017-’18 “mainly reflected a large-value case in the jewellery sector”, the central bank said in an apparent reference to the Punjab National Bank scam, in which businessmen Nirav Modi and Mehul Choksi are the prime accused. The scam, revealed in Feb 2018, involved a fraud of over ₹13,000 crore.
About 80% of all the frauds reported in 2017-’18 were large-value frauds involving ₹50 crore or above, the RBI’s report said. Public sector banks accounted for as many as 93% of the cases involving more than ₹1 lakh. The number of bank frauds increased from 5,076 in 2016-’17 to 5,917 the following year.
Frauds related to off-balance sheet operations and foreign exchange transactions were prominent in 2017-’18. Over 2,000 cases of cyber fraud accounted for ₹109.6 crore in 2017-18, as against ₹42.3 crore in 1,372 cases the previous year.
The modus operandi of large-value frauds involves “opening current accounts outside the lending consortium without a no-objection certificate from lenders, deficient and fraudulent services or certification by third-party entities, diversion of funds by borrowers through various means, including through associated or shell companies, lapses in credit underwriting standards and failure to identify early warning signals”, the central bank said.
The report said that the overhang of stressed assets had weighed down balance sheets of banks and adversely affected their profitability during 2017-’18.
However, recent data for April-September 2018 showed that non-performing assets have begun to stabilize, said the RBI.