Amount in bank fraud up 159% to Rs 1.85 trn in 2019-20: RBI annual report

Public sector banks constituted almost 80 per cent of the total fraud amount reported in 2019-20, followed by private banks with 18.4 per cent
Bank frauds, in value terms involving an amount of Rs 1 lakh and above, have more than doubled in 2019-20 period to Rs 1.85 trillion from Rs 71,543 crore in 2018-19 period, up 159 per cent. In volume terms, however, the total fraud cases have jumped 28 per cent to 8,707 in 2019-20 from 6,799 in 2018-19, revealed the annual report of Reserve Bank of India (RBI) for the year 2019-20.

While the increase in the number of fraud cases and the amount involved is substantial, the RBI has said that the date of occurrence of these frauds is spread over several previous years. “Frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value”, the RBI noted in its annual report.

Furthermore, the RBI said, there was a concentration of large value frauds, with the top fifty credit-related frauds constituting 76 per cent of the total amount reported as frauds during 2019-20. While bank frauds, both in value and volume terms increased in 2019-20, data suggest, for the period April – June 2020, as many as 1,558 frauds were reported amounting to Rs 28,843 crore, which is less in comparison to the 2,024 frauds reported in the same period in 2019 amounting to Rs 42, 228 crore.

While frauds have been predominantly reported in the advances category, with advances constituting 98 per cent of the total amount involve in frauds, other areas of banking such as off-balance sheet and forex transactions, fell in 2019-20 vis-à-vis the previous year.

Public sector banks constituted almost 80 per cent of the total fraud amount reported in 2019-20, followed by private banks with 18.4 per cent. As per the rules of the central bank, if an account has been classified as fraud by the banks, they have to make 100 per cent provisioning against it, be it at one go or spread over four quarters. 

The RBI report further goes on to say that the average lag between the date of occurrence of frauds and their detection by banks and financial institutions was 24 months during 2019-20. But, this lag time was even more in cases that involved huge amounts of money.

“In large frauds, i.e., Rs 100 crore and above, however, the average lag was 63 months”, the RBI said. The sanction of the credit facility in many of these accounts was much older, it added.

The RBI has noted that weak implementation of Early Warning Signals (EWS) by banks, non-detection of EWS during internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports and lack of decision making in joint lenders' meetings account for the delay in detection of frauds.

Hence they are revamping the EWS mechanism and strengthening the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny.

The Advisory Board for Banking Frauds (ABBF), which was created in consultation with the Central Vigilance Commission (CVC) to function as first level of examination of all large value fraud cases before recommendations/references are made to the investigating agencies by public sector banks, will confine itself to those cases involving the level of General Manager (GM) of banks and above, the RBI said.

Number of fake notes in circulation falls, but still significant

While the number of fake notes in the system has fallen, their number remains significant, even as high-value note counterfeiting seems to have been checked for now. There was an increase of 144.6 per cent, 28.7 per cent, 151.2 per cent and 37.5 per cent in counterfeit notes detected in the denominations of Rs 10, Rs 50, Rs 200 and Rs 500 respectively. However, counterfeit notes detected in the denominations of Rs 20, Rs 100 and Rs 2000 declined by 37.7 per cent, 23.7 per cent and 22.1 per cent, respectively, the central bank said.

Banks detected 95.4 per cent of fake notes in 2019-20 (April to March), while the rest 4.6 per cent fake notes were detected by the Reserve Bank.

The value and volume of banknotes in circulation increased by 14.7 per cent and 6.6 per cent, respectively, during 2019-20. In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for 83.4 per cent of the total value of banknotes in circulation at end-March 2020, with a sharp increase in the share of Rs 500 banknotes. In volume terms, Rs 10 and Rs 100 banknotes constituted 43.4 per cent of total banknotes in circulation at end-March 2020.

Among high value, Rs 2,000 notes fell in share, from 3291 million in 2019 to 2739.8 million in 2020. This indicates the central bank may not have printed additional Rs 2,000 notes in 2020, or may have taken out of circulation many of the existing ones.

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