As the Reserve Bank of India continues to tighten regulatory requirements in the banking industry, a recent survey by Deloitte Touche Tohmatsu India LLP showed that bank frauds have risen in the last 2 years. Its annual banking fraud survey showed that instances of fraud were up by 20 percent in the previous 2 years.
The report said that despite " a growing awareness among banks to enhance their fraud risk management framework in response to regulatory directives" there is a need for Indian banks to "integrate a larger financial crime compliance agenda that will work across the compliance, legal, credit and operations department."
It further said that the primary cause was the ineffectiveness to detect such instances, especially due to the increasing use of technology in banking. This is because banks lack forensic analytics tools to detect these frauds. The survey found that fraud documentation was the most common issue, followed by cybercrimes, third-party vendor fraud, and overvaluation or non-existent collateral.
The country's biggest scam at Punjab National Bank, allegedly involving jewellers Nirav Modi and Mehul Choksi, was a case of neglect and oversight in the detection of fraud. It was allegedly committed by two junior official at the bank's Mumbai branch by issuing unauthorized "letters of undertaking" via SWIFT for the firms of the two jewellers. The transactions were not detected as they were not linked to the Core Banking Solution.