Lok Sabha Question No. 1979 (UNSTARRED), answered on 2022-12-19
Subject: Fraud Risk Management Mechanism in Ban
Ministry: FINANCE
Asked by: Bhavana Gawali (Patil), Krupal Balaji Tumane

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO-† 1979

ANSWERED ON- 19/12/2022

## FRAUD RISK MANAGEMENT MECHANISM IN BANKS

## † 1979. SHRIMATI BHAVANA PUNDALIKRAO GAWALI SHRI KRUPAL BALAJI TUMANE

Will the Minister of FINANCE be pleased to state:-

(a) whether the Government  asked  banks  to  strengthen  their  fraud  risk  management mechanism as bank frauds are still on the rise;

(b) the steps taken by the Government/banks to plug the security loopholes and ensure proper investigation of banking frauds; and

(c) the number of such frauds that occurred during each of the last five years and the current year, bank-wise?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (DR. BHAGWAT KARAD)

(a) to (c):  In regard to strengthening of fraud risk management, Reserve Bank of India (RBI) has issued Master Direction on Frauds in 2016, whereby banks are required to frame internal policy  for  fraud  risk  management  and  fraud  investigation  function,  duly  approved  by  their respective Boards. Further, as per the said direction, fraud risk management, fraud monitoring and fraud investigation function must be owned by the bank's CEO, Audit Committee of the Board  and  the  Special  Committee  of  the  Board.  The  improved  detection  and  reporting accompanied  with  the  comprehensive  steps  taken  to  check  frauds  have  resulted  in  sharp decline in the occurrence of such frauds, from Rs. 46,772 crore in the financial year (FY) 201718 to Rs. 12,213 crore in FY2020-21, and to Rs. 67 crore during the first six months of the current financial year. As per RBI data, bank-wise and year-wise details of number of frauds in scheduled commercial banks (SCBs), in respect of amount involved of Rs. 1 lakh and above in each fraud, by the year of occurrence, for the last five financial years and the current financial year are at Annex .

Comprehensive steps taken to keep a check on frauds and to address various issues concerning frauds in banks, include, inter -alia , the following:

- (1) As per RBI's Master dire ction on Frauds, banks are required to report frauds beyond a threshold  amount  to  the  police,  monitoring  and  follow-up  of  cases  by  a  special committee, quarterly placement of information before Audit Committees of bank Boards, and annual review of frauds by banks.
- (2) For management of fraud risk and for 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),

requiring  banks  to  classify  potential  fraud  accounts  as  RFAs  based  on  observation  or evaluation of early warning signals noticed.

- (3) RBI  has  instructed  banks  to  report  deficient  third-party  services  (such  as  legal  search reports,  prope rty  valuers'  reports,  etc.)  and  collusion  of  these  service  providers  with fraudsters to the Indian Banks' Association, which maintains a caution list of such service providers.
- (4) Issuance  by  the  Government  in  2015  of  'Framework  for  timely  detection,  reportin g, investigation etc. relating to large value bank frauds' to Public sector banks (PSBs) for dealing with suspected frauds involving sum of money in excess of Rs. 50 crore.
- (5) An online searchable database of frauds reported by banks, in the form of Central Fraud Registry, has been set up to enable timely identification, control and mitigation of fraud risk and also to carry out due diligence during the credit sanction process.
- (6) The  Indian  Cyber  Crime  Coordination  Centre  (I4C),  working  under  the  Ministry  of Home  Affairs  has  operationalised  Financial  Cyber  Fraud  Reporting  and  Management System module, for immediate reporting of financial frauds and to stop siphoning-off of funds by the fraudsters.
- (7) The Indian  Computer  Emergency  Response  Team (CERT-IN)  under  the  Ministry  of Electronics and Information Technology issues alerts and advisories regarding latest cyber threats and countermeasures.
- (8) PSBs have been advised to strictly ensure rotational transfer of officials/employees.

In  addition,  measures  have  also  been  taken  to  deter  fraudsters,  which  include, inter  alia ,  the following:

- (i) The Fugitive Economic Offenders Act, 2018 has been enacted to provide 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.
- (ii) Heads  of  PSBs  have  been  empowered  to  issue  requests  for  issuance  of  Look-Out Circulars.
- (iii) Advisory has 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 policies.
- (iv) 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.

*****

## Lok Sabha Unstarred question no. †1979 , regarding FRAUD RISK MANAGEMENT MECHANISM IN BANKS Number of frauds reported by scheduled commercial banks

## in respect of amount involved of  Rs. 1 lakh and above, by the year of occurrence

| Bank                                            | FY 2017-18   | FY 2018-19   | FY 2019-20   | FY 2020-21       | FY 2021-22       | FY 2022-23 (Up to June) 2022   |
|-------------------------------------------------|--------------|--------------|--------------|------------------|------------------|--------------------------------|
| Aditya Birla Idea Payments Bank Limited         | --           | 24           | --           | --               | --               | --                             |
| Airtel Payments Bank Limited                    | --           | --           | --           | 58               | --               | 1                              |
| American Express Banking Corp.                  | 337          | 226          | 168          | 87               | 61               | 21                             |
| AU Small Finance Bank Limited                   | 4            | 9            | 9            | 11               | 6                | --                             |
| Australia and New Zealand Banking Group Limited | --           | --           | 1            | --               | --               | --                             |
| Axis Bank Limited                               | 372          | 372          | 344          | 506              | 595              | 44                             |
| Bandhan Bank Limited                            | 56           | 56           | 26           | 30               | 17               | 3                              |
| Bank of America, National Association           | 16           | 10           | 4            | 2                | 2                | --                             |
| Bank of Bahrain & Kuwait B.S.C.                 | --           | --           | --           | --               | 1                | --                             |
| Bank of Baroda                                  | 211          | 128          | 125          | 88               | 71               | 5                              |
| Dena Bank                                       | 11           | 3            |              | Amalgamated into | Amalgamated into |                                |
| Vijaya Bank                                     | 22           | 2            |              |                  | Bank of Baroda   |                                |
| Bank of India                                   | 148          | 146          | 101          | 49               | 54               | 2                              |
| Bank of Maharashtra                             | 64           | 86           | 33           | 19               | 12               | 2                              |
| Bank of Nova Scotia                             | 1            | --           | --           | --               | --               | --                             |
| Barclays Bank Plc                               | --           | --           | 1            | --               | --               | --                             |
| BNP Paribas                                     | --           | --           | 3            | 1                | --               | --                             |
| Canara Bank                                     | 111          | 96           | 57           | 35               | 23               | --                             |
| Syndicate Bank                                  | 169          | 78           | 37           | Amalgamated      | into Canara      | Bank                           |
| Capital Small Finance Bank                      | --           | --           | --           | 1                | 2                | --                             |
| Limited Catholic Syrian Bank Limited            | 30           | 24           | 32           | 65               | 41               | 8                              |
| Central Bank of India                           | 95           | 99           | 109          | 81               | 126              | 3                              |
| Citibank N.A                                    | 210          | 275          | 247          | 117              | 137              | 7                              |
| City Union Bank Limited                         | 13           | 9            | 11           | 16               | 6                | --                             |
| Coastal Local Area Bank Limited                 | --           | 1            | --           | 1                | --               | --                             |
| Cooperatieve Rabobank U.A.                      | 2            | --           | --           | --               | --               | --                             |
| CREDIT SUISSE AG                                | --           | --           | --           | 1                | --               | --                             |
| DBS Bank India Limited                          | 1            | 10           | 9            | 9                | 7                | --                             |
| DCB Bank Limited                                | 9            | 10           | 14           | 8                | 4                | --                             |
| Deutsche Bank Ag                                | 8            | 3            | 9            | 3                | 3                | --                             |
| Doha Bank Qsc                                   | --           | --           | --           | --               | 1                | --                             |
| Equitas Small Finance Bank Limited              | 19           | 29           | 20           | 30               | 14               | 3                              |
| ESAF Small Finance Bank                         | 5            | 7            | 8            | 9                | 8                | 2                              |
| Limited Federal Bank Limited                    | 46           | 49           | 38           | 71               | 34               | 3                              |
| Fincare Small Finance Bank Limited              | 2            | 19           | 4            | 5                | 10               | 1                              |
| Fino Payments Bank Limited                      | 3            | 19           | 30           | 23               | 25               | 2                              |
| Firstrand Bank Limited                          | 1            | --           | --           | --               | --               | --                             |
| HDFC Bank Limited                               | 408          | 456          | 446          | 335              | 294              | 20                             |
| Hongkong And Shanghai Banking                   | 302          | 222          | 241          | 140              | 85               | 9                              |
| Corpn. Limited ICICI Bank Limited               | 562          | 491          | 677          | 556              | 1198             | 63                             |
| IDBI Bank Limited                               | 159          | 178          | 153          | 116              | 102              | 18                             |
| IDFC First Bank Limited                         | 34           | 67           | 93           | 62               | 17               | --                             |

| Bank                                            | FY 2017-18   | FY 2018-19   | FY 2019-20   | FY 2020-21   | FY 2021-22       | FY 2022-23 (Up to June) 2022   |
|-------------------------------------------------|--------------|--------------|--------------|--------------|------------------|--------------------------------|
| India Post Payments Bank Limited                | --           | 1            | 7            | 2            | 1                | --                             |
| Indian Bank                                     | 76           | 75           | 71           | 60           | 48               | 3                              |
| Allahabad Bank                                  | 143          | 56           | 10           | Amalgamated  | into Indian      | Bank                           |
| Indian Overseas Bank                            | 90           | 95           | 65           | 39           | 24               | --                             |
| Indusind Bank Limited                           | 46           | 82           | 120          | 367          | 1098             | 108                            |
| Jammu & Kashmir Bank Ltd                        | 13           | 12           | 5            | 3            | 5                | --                             |
| Jana Small Finance Bank Limited                 | 15           | 32           | 57           | 29           | 26               | 6                              |
| Jpmorgan Chase Bank National                    | --           | --           | --           | 1            | --               | --                             |
| Association Karnataka Bank Limited              | 17           | 17           | 50           | 6            | 6                | --                             |
| Karur Vysya Bank Limited                        | 32           | 23           | 24           | 5            | 21               | --                             |
| KEB Hana Bank                                   | 1            | --           | --           | --           | --               | --                             |
| Kotak Mahindra Bank Limited                     | 289          | 384          | 653          | 828          | 896              | 189                            |
| Krishna Bhima Samruddhi Lab                     | --           | --           | --           | 1            | --               | --                             |
| Ltd. Lakshmi Vilas Bank Limited                 | 43           | 49           | 31           | 5 --         |                  | --                             |
| Nainital Bank Limited                           | 5            | --           | 5            | 4            | 2                | --                             |
| North East Small Finance Bank Limited           | --           | 2            | 3            | 6            | 2                | --                             |
| NSDL Payments Bank Limited                      | --           | --           | --           | 1            | 1                | --                             |
| Paytm Payments Bank Limited                     | --           | 2            | 1            | --           | --               | --                             |
| Punjab and Sind Bank                            | 28           | 19           | 38           | 51           | 2                | --                             |
| Punjab National Bank                            | 202          | 136          | 117          | 79           | 73               | 4                              |
| Oriental Bank of Commerce                       | 29           | 14           | 8            |              | Amalgamated into |                                |
| United Bank of India RBL Bank Limited           | 22 27        | 65 36        | 25 57        | Punjab 44    | National Bank 41 | 3                              |
| SBM Bank (India) Limited                        | 2            | 1            | 1            | 1            | --               | --                             |
| Shinhan Bank                                    | --           | --           | --           | 2            | --               | --                             |
| Shivalik Small Finance Bank                     | --           | --           | 1            | --           | --               | --                             |
| Sonali Bank                                     | --           | --           | 1            | --           | --               | --                             |
| South Indian Bank Limited                       | 29           | 55           | 32           | 31           | 42               | 3                              |
| Standard Chartered Bank                         | 96           | 91           | 229          | 126          | 85               | 9                              |
| State Bank of India                             | 966          | 1008         | 748          | 369          | 330              | 8                              |
| Sumitomo Mitsui Banking                         | --           | --           | --           | 1            | --               | --                             |
| Corporation Suryoday Small Finance Bank Limited | 7            | 1            | 12           | 13           | 3                | 2                              |
| Tamilnad Mercantile Bank                        | 39           | 42           | 44           | 45           | 14               | --                             |
| Limited The Bank of Tokyo-Mitsubishi Ufj Ltd    | 1            | 1            | --           | --           | --               | --                             |
| The Dhanalakshmi Bank Limited                   | 8            | 19           | 5            | 1            | 2                | --                             |
| UCO Bank                                        | 61           | 85           | 144          | 194          | 64               | --                             |
| Ujjivan Small Finance Bank                      | 11           | 13           | 34           | 27           | 16               | --                             |
| Union Bank of India                             | 172          | 113          | 122          | 93           | 60               | --                             |
| Andhra Bank                                     | 55 20        | 35 12        | 4            |              | Amalgamated into |                                |
| Corporation Bank                                |              |              | 4            | Union        | Bank of India    |                                |
| United Overseas Bank Limited                    | 1            | --           | --           | --           | --               | --                             |
| Utkarsh Small Finance Bank                      | 8            | 10           | 7            | 11           | 1                | --                             |
| Woori Bank                                      | --           | --           | 1            |              | --               | --                             |
| Yes Bank Limited                                | 51           | 61           | 42           | 35           | 23               | --                             |

Source: RBI