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Bank frauds up despite regulations

Yashajit Saha

The number of frauds in the banking industry and the money involved in these cases have been on the rise in recent years, despite stricter norms and regulations, the RBI noted in a presentation before the Joint Parliamentary Committee.

Drawing upon the latest information available with the Board for Financial Supervision, the RBI said the total amount involved in fraudulent cases has increased almost five times to Rs 6.40 billion in 1999 from Rs 1.323 billion in 1995.

Saying that banks are in trouble due to such frauds, the RBI said funds involved in frauds in the State Bank of India and its associates went up from Rs 202.4 million in 1995 to Rs 1.798 billion in 1999, while for other public sector banks, the rise was from Rs 952.8 million in 1995 to Rs 3.569 billion in 1999.

In the case of foreign banks, the amount involved in frauds increased sharply from Rs 45.7 million in 1998 to Rs 336.1 million in 1999.

The amount involved in frauds in private sector banks increased to Rs 959.2 million in 1997, from Rs 466.5 million in 1996. But since then it has come down to Rs 698 million in 1999, RBI said.

The total amount involved in frauds in the banking industry during the first six months of 2000, was estimated at Rs 2.028 billion.

The SBI and associates accounted for Rs 194.4 million, while frauds in other public sector banks amounted to Rs 1.567 billion. The private sector banks accounted for Rs 214.4 million worth of fraudulent transactions during the period.

Earlier, the RBI constituted a study group for an in-depth examination of frauds in the banking sector. On the basis of the recommendations of the group, the BFS had suggested that the concerned bank should report the fraud to the authorities within one month.

The board also said if the large value frauds were due to non-observance of the prescribed internal control system, the banks are to be penalised by way of restrictions on opening of new branches. However, contrary to the BFS direction, there was considerable delay in filing cases with the authority concerned.

A committee under the chairmanship of N L Mitra, former director, National Law School of India, has been set up to examine the legal issues required to contain the number of frauds. The committee is expected to submit its report shortly.

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