The introduction of liberalized policies and digitalization in the financial sector has boosted the inflow and outflow in the economy. The changes seem to have a positive effect on the Indian economy and accordingly the economy is growing steadily. However, as per the Annual Report of the Reserve Bank of India (hereinafter referred to as ‘RBI’), in the Financial Year (hereinafter referred to as ‘FY’) 2018-2019, the bank frauds have increased close to 74%. The RBI has detected total fraud amounting to 71,500 crores. This amount is strong enough to cause an impediment in the Indian economy.

RBI's report can be accessed here.

Key highlights of RBI’s Annual Report for 2018-2019

  • Total of 6,801 frauds involving a total of Rs 71,542.93 crore has been reported as against 5,916 cases involving Rs 41,167.04 crore in FY 2017-18.
  • Approximately, 2 years’ time was taken to detect these bank fraud cases. The cases worth Rs. 100 crores and above took almost 4 years to get detected.
  • The public sector banks have majorly been accounted for the fraud. With regard to this, it is significantly pointed out that public sector banks constitute the largest share in market lending.
  • While 55% of these frauds were committed by public sector banks, their amount accorded for a surprising 90% of the entire amount of the fraud.
  • For private banks, the number of frauds rose from 1,975 to 2,090 and the amount for these frauds increased from Rs. 2,478 crore in the Financial Year 2017-2018 to Rs. 5,515 crore in the FY 2018-2019, resulting in double the increase in frauds.
  • Surprisingly, as per this report, card/internet frauds detected were only 0.3% of the total value of the frauds.
  • Frauds related to loans accounted for 90% of the total frauds. Off the record asset borrowings and foreign exchange transactions constituted secondly for those frauds.
  • The major components of fraud were cheating and forgery, followed by misappropriation and criminal breach of trust.

Rise in counterfeit notes

  • The RBI detected more than over 21,000 counterfeit notes of Rs. 500 that amounted to Rs 1.09 crore for FY 2018-2019. Additionally, in FY 2017-2018 almost 10,000 notes amounting to Rs. 49.46 lakh were detected.
  • Nearly 22,000 counterfeit notes of Rs. 2,000 amounting to Rs. 4.36 crore were detected in FY 2018-19 as against nearly 18,000 notes amounting to Rs 3.58 crore, in FY 2017-2018.

Conclusion

As evident from the RBI’s repot, most bank frauds are due to loans advanced by the banks. Most of these loans have been facilitated to corporates in large amounts and are failed to be repaid. The determination process for these frauds is slow and mostly ineffective. As mentioned above, the average time taken to detect a fraud of more than Rs. 100 crores takes over 4 years of time to get detected. Due to lengthy processing time, the indicted persons for these frauds already devise a plan to get away with the repayment or even conviction.

The recent enactment of law on Fugitive Economic Offenders Act, 2018 (hereinafter referred to as ‘Act’), is an effort towards reducing the fraud cases and recognizing the fugitive offenders and convicting them. The Act has provisions for attachment of property of the economic offenders upon being accused of committing an offence as per the Act. The Act also provided for the provisions to initiate ex-parte proceedings against a company or any individual declared to be fugitive economic offender.

The government, in 2019, has introduced some changes in the Prevention of Money Laundering Act, 2002 (hereinafter referred to as ‘PMLA’). The amendments provides for elaborate description of ‘proceeds of crime’. The amendment also recognizes the offence of money laundering as a cognizable and non-bailable offence.