After bad debts, it’s now bank frauds which are haunting banks. In its annual report, the Reserve Bank of India (RBI) raised its concern over the sharp rise in bank frauds from ₹23,000 crore in 2016-17 to ₹41,000 crore in 2017-18.
According to the RBI annual report, the number of fraud cases reported by banks were 5, 835 in 2017-18. In the past 10 years, number of fraud cases averaged 4,500 a year.
The RBI raised its concern over the issue and suggested there is a need for improvement in the audit function and its governance i.e. it wants audits such as statutory audit, risk-based internal audit, concurrent audit, information systems audit and special audits to be tightened.
“Many instances of repetitive and similar audit findings over the years were seen. Further, internal audit could not detect many frauds, which came to light after accounts turned NPA. Fraud detection and reporting, as well as preventive steps, need to be more risk-focussed to identify red flags at an incipient stage,” the RBI said.
The central bank also noted that the jump in amount involved in frauds during 2017-18 was on account of the Rs. 14,000 crore fraud committed by diamond czar Nirav Modi, which affected one public sector bank, Punjab National Bank.
During 2017-18, public sector banks accounted for the majority of the percentage of the amount involved in frauds. On one hand, where public sector banks accounted for 92.9 percent, private sector banks accounted for 6 per cent.
The RBI said the share of PSBs in frauds relating to ‘off-balance sheet items’ such as Letter of Credit, Letter of Undertaking, and Letter of Acceptance was higher, at 96 per cent.
In cumulative amount involved in frauds till March 31, public sector banks accounted for about 85 per cent, whereas private sector banks accounted for 6 per cent.