Press Information Bureau

Government of India

Ministry of Finance

29-November-2012 17:42 IST

As per the report submitted by Ernst and Young total number of fraud cases during the FY 2011-12 stood at 204 involving an amount of Rs. 6,600 crore for the financial services sector.  The exposure of banking sector in this regard stood at Rs. 3,505.50 crore.

However, as per Reserve Bank of India’s record the incidents of frauds reported by banks along with amount involved therein during 2011-12 was 5569 cases involving an amount of Rs. 4,448 crore.

As reported by RBI, reasons for frauds are broadly as under:-

1.      Use of loan not for the purpose/s for which it was sanctioned.

2.      Improper pre-sanction inspection.

3.      Lack of due diligence before sanction of loan.

4.      Submission of fake title deeds, fake KYC documents by the borrowers.

5.      Submission of fake and fabricated financial statement by the borrowers.

6.      Sale of asset created out of loan without the knowledge of the bank.

The measures initiated by RBI are as under:-

Reserve Bank of India has issued detailed instructions vide Master Circular dated July 01, 2012 on “Frauds-Classification and Reporting” containing all the details/aspects relating to frauds.  On receipt of fraud reports from banks, various aspects related to the frauds are examined and concerned banks are advised to report the case to CBI/Police/SFIO, examine staff accountability, complete proceedings against the erring staff expeditiously, take steps to recover the amount involved in this fraud, claim insurance wherever applicable and streamline the system and also procedures so that frauds do not recur.

Reserve Bank of India as a part of its supervisory process also takes the following measures to prevent/reduce the incidence of frauds.

i)  Sensitizes banks from time to time about common fraud prone areas through issuance of modus operandi circulars on various types of frauds and the measures to be taken by them.

ii) Issues caution advises in respect of borrowers who have defaulted the banks.

In the past considering various concerns arisen out of bank’s operations, including incidence of frauds, RBI has advised banks to :

a)  Introduce a system of concurrent audit;

b)  Review working of internal inspection and audit machinery in banks by the Audit Committee  of the Board of Directors;

c)  Constitute a Special Committee of the Board to exclusively monitor frauds of Rs. One crore and above.

(iii) In order to make third parties and professionals accountable, who have played a vital role in credit sanction/disbursement or facilitated the perpetration of frauds, banks have been advised vide circular dated March 16, 2009 to report to Indian Banks’ Association (IBA).  IBA in turn will prepare caution lists of such parties for circulation among the banks.

This was stated by the Minister of State for Finance, Shri   Namo Narain Meena in written reply to a question in the  Rajya  Sabha today.

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DSM/RS/bs

Banking fraud prevention: regulatory measures require reporting, audits, accountability and caution lists to curb frauds. Regulatory responses emphasise enhanced classification, reporting and supervisory oversight. The Reserve Bank issued a Master Circular on Fraud-Classification and Reporting and requires banks to report frauds to law enforcement and investigative agencies, examine staff accountability, pursue recovery and insurance claims, and streamline systems to prevent recurrence. Supervisory measures include issuing modus operandi advisories and caution notices, urging introduction of concurrent audit, strengthening internal inspection and audit reviews by the board audit committee, and constituting a board-level committee to monitor large frauds.