What crackdown? Bank frauds up 20% in 2 yrs

Banks need to integrate larger compliance agenda, says report

MUMBAI: Banking frauds have continued to rise over the past two years despite a recent crackdown, according to Deloitte Touche Tohmatsu India Llp.

Instances of fraud have increased 20% in the past two years, Deloitte said in its annual banking fraud survey that will be formally released on Monday.

“While there has been a growing awareness amongst banks to enhance their fraud risk management framework in response to regulatory directives and/or rising incidents of fraud, there is a clear need for banks to integrate a larger financial crime compliance agenda that will work across the compliance, legal, credit and operations department,” Deloitte said in the report.

“The rise in the fraud instances is primarily due to ineffectiveness to curb such instances and the detection is still to become proactive,” said KV Karthik, partner and financial services lead—forensic Financial Advisory, Deloitte.

The growth of technology and digital channels have made fraud detection all the more difficult and most banks lack the forensic analytics tools needed to predict frauds, Deloitte said.

The ₹14,356 crore scam at Punjab National Bank, allegedly perpetrated by jewellers Nirav Modi and Mehul Choksi, was a case of lax detection and oversight.

The country’s biggest loan fraud was allegedly committed by two junior officials at a Mumbai PNB branch, who issued unauthorized “letters of undertaking” (LOU) via SWIFT for firms linked to the two jewellers.

The scam went undetected as these transactions were not linked to the Core Banking Solution or CBS.

Banks across the world use SWIFT or Society for Worldwide Interbank Financial Telecommunications, a messaging network, for securely transmitting information and instructions for financial transactions.

The cost of anti-fraud measures has also substantially gone up in the past two years. “By one estimate, the banks have increased spends by at least 10-12% year-on-year for setting up anti-fraud measures,” said a forensic analyst who did not wish to be named.

“It would be difficult to give a number but the numbers of forensic audits have gone up in the past two years. Banks are now increasingly getting conscious about low-value accounts or small exposures,” said Kartik.

While these frauds have been across sectors they are higher in trading- and commodity-based companies.

“It is difficult to assess the real value of assets and liabilities in companies which are mostly trading companies and are into commodities trading,” said the forensic analyst.

According to the Deloitte report, fraudulent documents, at 15%, account for most frauds, followed by cybercrime (10% of all frauds, and rising) and non-existent collaterals, also 10%.