Lok Sabha Question No. 185 (STARRED), answered on 2021-03-08
Subject: Bank Frauds
Ministry: FINANCE
Asked by: Keshari Devi Patel

## GOVERNMENT' OF INDIA MINISTRY OF FINANCE

## LOK SABHA STARRED QUESTION NO-+*185

ANSWERED ON- 08/03/2021

## BANK FRAUDS

+*185. SHRIMATT KESHARI DEVI PATEL

Will the Minister of FINANCE be pleased to state:-

- a) the steps taken by the Government to prevent increasing incidents of fraud in banks with the details thereof; being along
2. the number of bank 0 fficers and staff whom action has been taken during the last three years for co-operating/acquiescence in online fraudulent activities with the details thereof; against along
3. whether the Government proposes to make up its losses by action the guilty officers and staff involved in co-operating/ acquiescence in fraudulent activities in banks within a fixed time limit; against taking
4. (d) if so, the details thereof with the steps taken in this the last three years, bank-wise; and regard during along
5. (e) whether the Government has developed o proposes to develop any mechanism for timely prevention of bank frauds and if the details thereof? SO,

## ANSWER

## THE FINANCE MINISTER

(SMT: NIRMALA SITHARAMAN)

- (a) to (e): A statement is laid on the 'Table of the House:

Statement as referred to in reply of Lok Sabha Starred Question no. +*185 for answer 0n &h March, 2021/ Phalguna 17, 1942 (Saka) regarding 'Bank Frauds" by SHRIMATI KESHARI DEVI PATEL, Hon'ble Member of Parliament

(a) to (e): Various mechanisms are in and comprehensive steps have been taken for prevention of bank frauds, which; include, inter-alid, the following: place

- 2) For enforcement of auditing  standards and ensuring the quality of audits, the National Financial Reporting Authority has been established as an independent regulator:
2. An online searchable database of frauds reported by banks, in the form of Central Fraud   Registry, has set up to enable   timely  identification,  control and mitigation of fraud risk and carrying out due diligence the credit sanction process: been during
- (3) RBI has issued Master Directions On Frauds Classification and Reporting, which requires   banks, to report frauds   beyond a threshold amount to the   police, monitoring and follow-up of cases by a committee, quarterly placement of information before Audit Committees of bank Boards, and annual review of frauds by banks These cover; inter   alia, preventive measures, fraud detection systems, systemic lacunae, remedial  action,  monitoring of progress of investigation and recovery, and staff accountability: special
4. For management of fraud risk and for early detection of loan  frauds, prompt reporting to RBI and investigative   agencies and timely initiation accountability proceedings, RBI has issued a framework for dealing with loan frauds and red flagged accounts (RFA), requiring banks to classify potential fraud accounts as RFAs based on observation or evaluation of early warning signals noticed.
5. RBI has imposed penalty on banks for deficiencies observed in internal control leading to frauds in deposit accounts, misuse and also issued letter of warning to some banks  with to the lapses in following the procedures, guidelines, reporting etc. cheque etc , regard
6. RBI has instructed banks to report deficient third party services (such as legal collusion of these providers with fraudsters to the Indian Banks' Association, which maintains caution list of such service providers: search against
7. RBI has issued circular to all banks in February 2018 to implement security and operational controls such as straight-through process between the bank's core banking solution o1 accounting system and the SWIFT' messaging system, enable time-based restrictions in SWIFT, review at intervals, undertake reconciliation, etc in a time-bound manner: regular logs
- 8) Instructions/advisories have been issued
9. by Government to PSBs 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;
10. (ii) to SCBs to implement RBI guidelines to prevent   skimming of ATM/ debit/credit cards;
11. (iv) by RBI to SCBs to strictly ensure rotational transfer of officials / employees:
12. (ii) by RBL to SCBs to ensute legal audit of title documents in respect of large value loan accounts; and

Government; in 2015,issued *Framework for timely detection, reporting; investigation etc relating to value bank frauds" to Public Sector Banks (PSBs) for systematically and comprehensively dealing with frauds in accounts exceeding Rs 50 crore, if classified as nonperforming assets (NPAs), and instituted wide-ranging structural and procedural reforms through the framework and other steps to check frauds in banks Such systematic and comprehensive checking for frauds, including of the legacy stock of NPAs; led to unearthing of frauds perpetuated over the years: While such systematic and comprehensive checking has increased the annually reported amount involved in frauds of Rs 1 lakh and above; as reported by Scheduled Commercial Banks (SCBs) and select financial institutions based on the date of reporting, the improved detection and reporting accompanied with the comprehensive steps taken to check frauds have resulted in the amount involved in frauds occurring annually, decreasing from a of Rs: 62,398 crore in the financial year three quarters of the current financial yeat; as per RBI data on frauds reported up to 31.12.2020. large peak

In addition; measures have been undertaken to help deter frauds, which include, inter \_ the following;

- (1) Heads of PSBs have been empowered to issue requests for issuance ofLookOut Circulars.
2. The Fugitive Economic Offenders Act; 2018 has been enacted to 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. provide
3. (i) Advisory has been issued by Government to PSBs to decide on publishing photographs of wilful defaulters, in terms of RBTs instructions and as per their Board-approved policies

With to bank officers and staff involved in fraudulent activities online and action such personnel for fraudulent activities, as per RBI, data in respect of the number of such personnel in terms of fraudulent activities online are not maintained by it, while RBI circular requires banks to examine staff accountability in all cases of frauds and to take action as for completion within stipulated timeline: regard against required