, they are not alarming. category of frauds 11. broadly, the frauds reported by banks can be divided into three main sub - groups : • technology related • kyc related ( mainly in deposit accounts ) • advances related a closer examination of the reported fraud cases has revealed that around 65 % of the total fraud cases reported by banks were technology related frauds ( covering frauds committed through / at internet banking channel, atms and other alternate payment channels like credit / debit / prepaid cards ) while the advances portfolio accounted for a major proportion ( 64 % ) of the total amount involved in frauds. table 4 below shows that relatively large value advances related frauds ( > rs. 1 crore ) have increased both in terms of number and amount involved over the last four years. bis central bankers ’ speeches table 4 : bank group wise advance related frauds ( rs. 1 crore & above in value ) ( no. of cases in absolute terms and amount involved in rs. crore ) 2009 – 10 bank group 2010 – 11 2011 – 12 no. of amount no. of amount no. of amount cases involved cases involved cases involved nationalised banks including sbi group 736. 14 1820. 12 2961. 45 old private sector banks 99. 10 289. 31 new private sector banks 63. 38 234. 18 sub - total 162. 48 foreign banks 45. 26 grand total 943. 87 2012 – 13 no. amount of involved cases cumulative total ( as at end march 2013 ) no. of cases amount involved 309 6078. 43 14577. 28 63. 31 49. 87 767. 75 75. 68 67. 47 1068. 18 523. 49 138. 98 117. 34 1835. 93 33. 20 83. 51 16. 75 277. 05 2376. 81 3183. 94 349 6212. 51 16690. 26 technology related frauds 12. the substantially larger proportion of technology related frauds by number is only expected as there has been a remarkable shift in the service delivery model with greater technology integration in the financial services sector. banks are increasingly nudging their customers to adopt newer service delivery platforms like mobile, internet and social media, for enhanced efficiency and cost - cutting. but while banks ’ customers have become techsavvy and started using online banking services and products, evidence suggests that even fraudsters are devising newer ways of perpetrating frauds by exploiting the loopholes in technology

increasingly innovative approaches ( including channels, products, interface, etc. ). 13. part of the improved engagement was to ensure enhanced access to credit for small and medium enterprises ( smes ), which were expected to be the major contributors to future growth and employment creation. credit to smes would require an innovative combination of banks, private equity. 14. we said that with the broadening and deepening of financial sector, some banks may choose to operate in niche areas so as to reap certain obvious advantages in terms of managing business and risk management. some countries, as we noted, have differentiated bank licensing regimes where differentiated licenses are issued, specifically outlining the activities that the licensed entity can undertake. with the broadening and deepening of financial sector in india, we saw a need that banks move from the situation where all banks provide all the services, to a situation where banks find their specific realm and mainly provide services in their chosen areas. 15. in september 2013, we set up a committee headed by shri nachiket mor, on comprehensive financial services for small businesses and low - income households to look into the issues relating to financial inclusion. the committee came up with two broad designs for the banking system in the country – the horizontally differentiated banking system ( hdbs ) and the vertically differentiated banking system ( vdbs ) based on the functional building blocks of payments, deposits and credit. 16. in a hdbs design, the basic design element remains a full - service bank that combines all three building blocks of payments, deposits, and credit but is differentiated primarily on the dimension of size or geography or sectoral focus. in a vdbs design, the fullservice bank is replaced by banks that specialise in one or more of the building blocks of payments, deposits, and credit. among others, the committee suggested licensing of payments bank and wholesale banks as differentiated banks. bis central bankers ’ speeches 17. the nachiket mor committee opined that in the indian context it would be important to have the regulatory flexibility to approach payments, savings, and credit independently ( the vertically differentiated banking design ) and to bring them together when the efficiency gains are high and the other costs are low. 18. taking into account all these recommendations and the feedback to the discussion paper, we concluded that differentiated licensing would be a desirable step and accordingly in november 2014 we announced our intention to grant licenses to two types of differentiated banks viz., the payment banks and the small finance banks.