RBI data on frauds reported to it by banks has been cited in sections of the media to paint a picture of rising frauds in banks in recent years. The fact is that this data is by the year of reporting and not the year of occurrence of the fraud or sanction of loan, Letter of Undertaking etc., which in many cases is of an earlier period. Occurrence of frauds was enabled by laxity in the financial system which has been systematically dealt with through comprehensive banking reforms instituted by the Government to address underlying causes and provide for proactive checking for and detection of frauds. Key steps taken in this regard include:

• Government has issued instruction that all accounts exceeding ₹ 50 crore, if classified as NPAs, be examined by banks from the angle of possible fraud. In addition, Public Sector Banks (PSBs) have also been advised to seek a report on the borrower from the Central Economic Intelligence Bureau, in case an account turns NPA.
• Proactive action has been taken against wilful defaulters, with FIRs being registered by PSBs against 2,881 wilful defaulters.
• For enforcement of auditing standards and ensuring the quality of audits, Government has established National Financial Reporting Authority as an independent regulator.
• Fugitive Economic Offenders Act, 2018 has been enacted in order to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.
• Pursuant to Government’s advice to PSBs, they have been obtaining certified copy of passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than ₹ 50 crore, and are ensuring rotational transfer of officials/employees on sensitive posts.

Above position has been clarified in response to Rajya Sabha Starred Question no. 198, replied on 1.1.2019, copy of which is annexed.

Fraud detection strengthened by mandatory scrutiny of large NPAs and enhanced enforcement and audit measures. Increase in reported frauds reflects detection and year-of-reporting methodology rather than contemporaneous occurrence. The Government has required fraud scrutiny of large NPA accounts, advised banks to obtain intelligence reports on borrowers whose accounts turn NPA, and encouraged prosecution of wilful defaulters. An independent regulator for audit standards has been established, new legislation addresses economic offenders abroad, and banks are advised to secure identity documentation of key company persons and rotate staff in sensitive posts.