Lok Sabha Question No. 1447 (UNSTARRED), answered on 2019-07-01
Subject: Bank Frauds
Ministry: FINANCE
Asked by: Manish Tewari

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO: 1447 TO BE ANSWERED ON THE 1 st  JULY, 2019/ASHADHA 10, 1941  (SAKA)

## Bank Frauds

## 1447:  SHRI MANISH  TIWARI:

Will  the Minister  of FINANCE  be pleased to state:

- (a) the details  of the number  of cases of bank  frauds in the Reserve  Bank of India (RBI) during  each of the last five years,  bank-wise  and party-wise;
- (c) the number  of criminal  cases registered  in bank  fraud cases and the number  of such cases resulted  in convictions  and the status of each case during  the said period,  casewise;
- (b) the criterion  used by  the RBI/public/private sector banks  to declare  a transaction  or a series of transactions  as a bank  fraud;
- (d) the amount  of money  recovered  by  the public/private  sector banks  as a consequence of legal  actions  initiated  by  banks  during  the said period;  and
- (e) the details  of the legal  distinction  between  a bank  fraud  and a non-performing  asset?

## ANSWER

## (S mt. Nirmala  Sitharaman)

## To be answered by FINANCE  MINISTER

- (a) to (e): Comprehensive measures  have been taken  to tighten  fraud prevention  systems and deter perpetration  of frauds in banks,  including, inter-alia, the following:
- (i) all   accounts   exceeding   Rs.  50  crore,   if  classified   as  Non-Performing Assets (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;
- (1) Government  has issued 'Framework  for timely  detection,  reporting,  investigation etc. relating   to  large   value   bank   frauds'  to  Public   Sector   Banks   (PSBs),  which provides, inter-alia , that -
- (ii) examination  be initiated  for wilful  default  immediately upon reporting  fraud to RBI; and
- (2) As  per  RBI's  instructions   on  wilful   defaulters,   lenders   may   initiate   criminal proceedings   against   wilful   defaulters,   wherever   necessary.   Proactive   action has been taken  against  wilful   defaulters,   with   FIRs  being registered   by   PSBs  against 3,154 wilful  defaulters.
- (iii) report   on  the  borrower   be  sought   from   the  Central   Economic   Intelligence Bureau in case an account  turns  NPA.
- (3) 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.

- (5) Central  Fraud  Registry  (CFR),  based on Fraud  Monitoring Returns  filed by  banks and  select  financial   institutions, has  been  set  up by   RBI  as  a  searchable   online central database for use by banks. In order to bring transparency and accountability in the larger financial system, bank accounts of 3.38  lakh inoperative  companies  were  frozen  over the last two  financial  years.
- (4) PSBs  have  been  advised  to  obtain   certified copy of the passport of the promoters/directors and other  authorised  signatories  of companies  availing  loan facilities   of  more   than   Rs.  50  crore   and,   decide  on  publishing   photographs   of wilful  defaulters,  in terms  of 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  issue  of  Look   Out Circulars  (LOCs).
- (6) For  enforcement   of  auditing   standards   and  ensuring   the  quality   of  audits, Government   has  established the  National   Financial   Reporting   Authority as  an independent  regulator.
- (8) RBI has issued a circular  to all banks  in February, 2018 to implement  security  and operational  controls  such as straight-through process between  the Core  Banking Solutions/accounting system   and  the  SWIFT   messaging   system,   enable   timebased restrictions in SWIFT, review logs at regular intervals, undertake reconciliation, etc. in a time-bound  manner.
- (7) For management  of fraud risk  and to direct  the focus of banks  to early  detection of  loan   frauds,   prompt   reporting   to  RBI  and  investigative agencies  and  timely initiation of  staff  accountability  proceedings,   RBI  has  issued  a  framework for dealing   with   loan   frauds  and  Red  Flagged   Accounts   (RFA),   with   timelines   for actions   incumbent   on  banks,   for  dealing with   loan   frauds  of  Rs.  50  crore   and above,  requiring   banks   to  classify   potential   fraud   accounts   as  RFAs   based  on observation/evaluation of Early  Warning  Signals  noticed.  The red flagging  is done on an information  technology  platform  where  all banks  report  large  exposure to entities/individuals so that  other  banks  can be forewarned  about  fraud  risk.
- (9) RBI  has  instructed   banks   to  report   deficient   third   party   services   (such  as  legal search  reports, property valuers' reports etc .) and  ineffective action  against collusion   of  these  providers   with   fraudsters   to  the  Indian   Banks'   Association, which  maintains  a caution  list  of such service  providers.
- (11) Government  has formed  an inter-agency  coordination  committee  to look  into  the large  value  bank  frauds.
- (10) 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  certified  copy  of the passport  of the  promoters/directors and  other   authorised   signatories   of  companies   availing loan facilities  of more  than  Rs. 50 crore.

As per the reports  by  Public  Sector  Banks (PSBs) to RBI, based on date of occurrence, the  bank-wise   details   of  number   of  frauds  of  Rs.  1  lakh   and  above  for  the  last  five financial  years  is at Annex,  which  shows  continues  decline  in the number  of frauds over this period.

With  regard  to the criterion  used to declare  a transaction  or a series of transactions  as a fraud,  RBI has informed  that  in terms  of RBI's Master  Directions  on Frauds,  in order  to have  uniformity in  reports,   frauds  have  been  classified   as  under,   based  mainly   on provisions  of the Indian  Penal  Code:

- (b) fraudulent   encashment through   forged  instruments,   manipulation of  books   of account,  fictitious  accounts,  and conversion  of property;
- (a) misappropriation and criminal  breach  of trust;
- (c) unauthorised  credit  facilities  extended  for reward  or for illegal  gratification;
- (e) cheating  and forgery;
- (d) cash shortages;
- (f) fraudulent  transaction  involving  foreign  exchange;  and
- (g) any  other  type  of fraud  not  coming  under specific  heads as above.

The distinction  between  a bank  fraud and a Non-Performing  Asset (NPA)  is that  while  a fraud  is  a  criminal   offence,  an  NPA   is  a  loan   or  advance   where   the  interest   and/or instalments  of the principal  remain  overdue  for more  than  90 days.

As per inputs  received  from the Central  Bureau  of Investigation  (CBI), during  the period from the year  2014 till  31.5.2019,  847 cases were  registered  with  CBI by  banks,  out of which  371 cases are currently under  investigation, 450 cases are under  trial,  14 cases have been closed, four cases have resulted  in conviction,  court  has ordered  stay  in two  cases, and regular  departmental  action has  been advised  in six cases.

As per inputs  received  from PSBs, an aggregate amount  of Rs. 2,06,586 crore  has been recovered  from NPA  accounts  during  the last five financial  years  as a consequence  of legal  actions  initiated.

## Lok Sabha Unstarred  Parliament  Question  No. 1447, for 1.7.2019

## Bank-wise data on number  of frauds as reported  by Public Sector Banks based on date of occurrence (amount involved  Rs. 1 lakh and above)

|       | FY 2014- 15   | FY 2015- 16   | FY 2016- 17                    | FY 2017-18               | FY 2018-                   |
|-------|---------------|---------------|--------------------------------|--------------------------|----------------------------|
|       | 35            | 20            | 63                             | 11                       |                            |
|       | 40            | 58            | 36                             | 37                       |                            |
|       | 263           | 153           | 140                            | 84                       |                            |
|       | 160           | 121           | 95                             | 99                       |                            |
|       | 64            | 36            | 34                             | 32                       |                            |
| ited  | 1             | 3             | -                              | -                        |                            |
|       | 153           | 89            | 48                             | 50                       |                            |
|       | 121           | 79            | 59                             | 56                       |                            |
|       | 75            | 57            | 52                             | 12                       |                            |
|       | 30            | 36            | 24                             | 11                       |                            |
|       | 92            | 130           | 91                             | 94                       |                            |
|       | 70            | 48            | 70                             | 47                       |                            |
|       | 113           | 74            | 53                             | 34                       |                            |
| e     | 124           | 108           | 42                             | 24                       |                            |
|       | 27            | 17            | 22                             | 3                        |                            |
|       | 142           | 142           | 101                            | 108                      |                            |
|       | 588           | 514           | 469                            | 618                      |                            |
| aipur | 18            | 8             | AssociatesbanksmergedwithSBI 5 | witheffect from 1.4.2017 | AssociatesbanksmergedwithS |
|       | 25            | 18            | 6                              |                          |                            |
|       | 26            | 75            | 12                             |                          |                            |
|       | 17            | 15            | 6                              |                          |                            |
|       | 16            | 22            | 15                             |                          |                            |
|       | 200           | 249           | 127                            | 78                       |                            |
|       | 65            | 36            | 31                             | 41                       |                            |
|       | 117           | 95            | 83                             | 69                       |                            |
|       | 21            | 39            | 29                             | 15                       |                            |
|       | 27            | 57            | 32                             | 22                       |                            |
|       | 2,630         | 2,299         | 1,745                          | 1,545                    |                            |

Note:  Comprehensive  measures  have been taken  to prevent  frauds including  directions  to banks  to examine  all NPA  accounts   above  Rs.  50  crore   from the  angle  of  possible   fraud,   initiation of  criminal   proceedings, enactment  of Fugitive  Economic  Offenders  Act 2018, creation  of Central  Fraud  Registry,  empowering  Bank Heads to request   for  issue  of  Look   Out Circular, establishment   of  National   Financial   Reporting   Authority,

Straight   through   processing   between   Core   Banking   System   and  SWIFT,   advice   to  banks   to  obtain   certified copy  of passport  of promoters/directors of companies  availing  loan  exceeding  Rs. 50 crore  etc.

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