Instances Of Bank Frauds Jump As Digital Payments Rise: RBI Annual Report

Troublingly, the number of online frauds rose by more than 400 per cent in one single year. RBI's report shows that the number of frauds pertaining to just cards and internet payment rose from just 6,699 in 2022-23 to 29,082 in 2023-24. Over a two year the rise was actually 8-fold. 

Instances of frauds in India’s public and private sector banks as a whole have also increased significantly in 2023-24, the report showed. The saving grace, however, is that despite the number of frauds rising, the amount involved has come down.

The annual report noted that though private sector banks reported the maximum number of frauds, public sector banks continued to contribute most to the total fraud amount. 

The Rising Spectre Of Fraud

In fact for public sector banks the number of frauds has been steadily rising. In 2023-24, the number stood at 7,472 compared to 3,392 in 2022-23-- more than double. In 2021-22, the number was 3,044. However, the amount involved in frauds has reduced to Rs 10,507 crore in 2023-24 from Rs 18,750 crore in 2022-23.

For private sector banks the number of frauds stood at 24,210 in 2023-24—up from 8,979 in the ear before. Much like the state owned banks, the money involved in these frauds came down to Rs 3,170 crore in 2023-24 from Rs 6,159 crore in the previous financial year.

This means that the number of fraud cases in the banking sector increased by nearly 300 per cent in the last two years in the financial year 2023-24.

"The rise of fraud and especially in the area of digital transactions is an area of concern as most banks have been tweaking their fintech solutions to try and plug fraudulent movement of money over the last two years. It's of course also an indication that fraudsters are staying a step ahead in the technological race." said Amit Banerjee, an independent fintech advisor to many financial companies.   

The problem for both fintech solution providers and crime fighters is that many of these online frauds  are being carried out  from geographies quite far away from India. Three Southeast Asian nations - Laos, Cambodia and Myanmar - account for 45 per cent of these crimes in India.

With the programs for these crimes often written in Mandarin, officers trying to probe these cases believe the crime could actually originate in China and the South East Asian centres could be mere data branches from where the cyber crime effort are being made. "The control is possibly in the hands of a Chinese origin triad or triads (mafia)," Banerjee said. 

Delay In Detection 

According to the report, the vintage of frauds reported during 2022-23 and 2023-24 also shows a significant time-lag between the date of occurrence of the fraud and its detection.

Nearly 94 per cent of the frauds reported in the year gone by, occurred in 2022-23. Similarly, 89.2 per cent of the frauds reported in 2023-24 by value occurred in previous financial years.

“The lag in reporting or detection is also a matter of serious concern,” a senior banker said, adding that this is an area which needs to be looked into as it indicates that the frauds were so complex that it took longer to detect them.

“Such a lag could have wider implications on the way we should scrutinise digital pay-outs,” the banker who works for a PSU bank, said, adding that with increased volume of digital payment, there is need to tighten checks and audits. Officials pointed out that in some cases, the time lag between the date of occurrence of a fraud and its detection could be more than two years.

Indians lost some Rs 1750 crore due to cyber-crimes in the first four months of this calendar year, according to government data which showed over 7.4 lakh complaints were lodged on the National Cybercrime Reporting Portal, which is managed by the Ministry of Home Affairs.

Earlier, speaking at an event, RBI governor Shaktikanta Das said that technology along with behavioural analysis, would help in analysing discrepancies in consumer behaviour and thereby help in curbing instances of frauds. He has asked banks to remain vigilant to avoid any build-up risks in the banking system.