State-run lenders accounted for a staggering 85 per cent of nearly 6,500 fraud cases, amounting to more than Rs 30,000 crore, RBI‘s latest edition of Financial Stability Report showed. Top 10 banking frauds in 2018 alone lead to a financial loss of Rs 10,000 crore. Banks had reported nearly 5,000 frauds amounting to Rs 20,000 crore in fiscal year 2017.
“In recent years, frauds reported (For more than Rs 1 lakh) in the Indian banking sector show an increasing trend both in terms of number and quantum. In terms of the relative share of frauds, PSBs have a disproportionate share (more than 85 per cent) significantly exceeding their relative business share,” the regulator said.
While the bulk of banking frauds was loan-related, a sharper rate of growth was observed in total number of frauds in 2017-18 was also driven by a significant jump in card and internet banking related scams. The quantum and share of PSU bank frauds was much higher than their credit and deposit share which stands at 65 and 75 per cent respectively, RBI data showed.
“Fraud amount reported in PSBs is well in excess of their relative share in credit. It could be that somewhat lax internal controls in these bank cohorts have magnified their stressed asset positions relative to non-PCA PSBs,” the regulator noted.
RBI also said that PSBs lacked effective credit screening and oversights resulting in high volume of loan fraud. The regulator also stressed that while the operational risk oversight frameworks of public and private sector banks was not different, the significant differences realised in operational risk called for a deeper introspection of the effectiveness of processes at state-run lenders.
“A significant deterioration in such assets in the PSB segment possibly owes a lot to poor credit screening, deficiency in oversight of the account by the lead bank and information asymmetry between participating banks in consortium arrangements,” the regulator pointed out.