Bank Frauds: Doubled

On 30 December, the Mumbai Police arrested an executive of Bank of India who had been on suspension in connection with a 2014 fraud case. The banker was involved in giving loans against fixed deposits which were based on accounts having fraudulent documents.

This arrest was after the CBI filed its chargesheet against two employees of Bank of Baroda, for offences including criminal conspiracy and cheating. This was due to alleged illegal remittances of at least INR60 billion made to around 350 accounts in Hong Kong and Dubai. This was done through multiple accounts that were opened over the past 6-12 months. As the funds were transferred electronically from 11 accounts in HDFC Bank to Bank of Baroda, there might be other banks involved in the racket too.

Prior to this, in 2013, Cobrapost exposed a money laundering racket across a number of the country’s largest banks. The website had uncovered violations of basic banking rules, including Foreign Exchange Management Act, 1999, KYC norms and anti-money laundering rules. Reserve Bank of India (RBI) confirmed the transgressions which resulted in INR 500 million fine imposed on 22 banks.

Another evidence of large scale fraud in which chairman of Syndicate Bank was arrested for taking a bribe to sanction loans to Bhushan Steel Ltd. The general proposition is that banks are losing money due to NPA’s. However, the truth is far from this.

NPAs did rise by 23% from 2013-14 and 2014-15, threatening India’s banking system but the amount involved in bank fraud rose from INR101.7 billion in the fiscal year 2013-14 to INR193.61 billion in 2014-15, i.e. nearly 100%. Maharashtra and West Bengal, both states account for more than 50% of the total loss through fraud.

The questions arises what are the reasons behind increasing number of frauds and how the culprits can be caught rapidly. The reasons range from the lack of due diligence by the branch managers to the senior management’s soft approach on variations from the existing processes and the pressure to meet difficult business targets. However, lack of integrity is one factor which can’t be avoided at any cost.

There has been some action and policy proposals to restrict frauds. RBI has also introduced some reforms but these have proved to be nothing but effective. Government needs to take strict action and serious insight into this matter.