Bank fraud cases in India: Centre lays down measures to curb fraudulent incidents

On Tuesday, July 27, Union Minister of State for Finance Dr. Bhagwat Kisnrao Karad in a written reply to a question in Rajya Sabha informed that as per the information received from RBI, the number of fraud cases of Rs 500 crore and above reported by Public Sector Banks/ Indian Banks (Except Foreign Banks) / Select Financial Institutions are 79 cases in 2019-20, 73 cases in 2020-21, and 13 cases in 2021-22 (up till June 30, 2021). 

The Minister further stated that the RBI Master Circular on Frauds of 2015 are frauds committed by corrupt borrowers by various methods including, inter alia, a fraudulent discount of instruments, fraudulent disposal of pledged /hypothecated stocks, fund diversion, criminal neglect, and mala fide managerial failure on the part of borrowers. Some of the other methods include forged instruments, manipulated account books, fictitious accounts, unauthorized credit facilities, fraudulent foreign exchange transactions, exploitation of “multiple banking arrangements”, and deficiency on the part of third parties with a role in credit sanction/disbursement.

Considering the high incidence of fraud cases, the government has taken comprehensive measures to curb the incidence of fraud cases in the country. 

Govt's measures to curb incidence of frauds in banks

1) Government has issued “framework for timely detection, reporting, investigation etc. relating to large value bank frauds” to Public Sector Banks (PSBs), for systemic and comprehensive checking of legacy stock of their non-performing assets (NPAs), which provides, inter-alia, that-

• All accounts exceeding Rs. 50 crore, if classified as NPAs, be examined by banks from the angle of possible fraud, and a report placed before the bank’s Committee for Review of NPAs on the findings of this investigation
• Examination be initiated for wilful default immediately upon reporting fraud to RBI
• Report on the borrower be sought from the Central Economic Intelligence Bureau in case an account turns NPA

2) Fugitive Economic Offenders Act, 2018 has been enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. The act provides for attachment of property of a fugitive economic offender, confiscation of such offender’s property, and disentitlement of the offender from defending any civil claim.

3) PSBs have been advised to obtain a certified copy of the passport of the promoters/directors and other authorized signatories of companies availing loan facilities of more than Rs. 50 crore and, decide on publishing photographs of wilful defaulters, in terms of Reserve Bank of India (RBI)’s instructions and as per their Board-approved policy and to strictly ensure rotational transfer of officials/employees. The heads of PSBs have also been empowered to issue requests for the issue of Look Out Circulars.

4) For enforcement of auditing standards and ensuring the quality of audits, the Government has established the National Financial Reporting Authority as an independent regulator.

5) Instructions/advisories have been issued by Government to PSBs to decide on publishing photographs of wilful defaulters, in terms of RBI’s instructions and as per their Board-approved policy, and to obtain a certified copy of the passport of the promoters/directors and other authorized signatories of companies availing loan facilities of more than Rs. 50 crore.

(With PIB input)

(Image credit: PTI)