Fraud can be defined as, ‘a deliberate act of omission or commission by any person, which has been carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, thereby resulting into wrongful gain to any person for a temporary period with or without any monetary loss to the bank’.


  • A tricked B of Rs. 3 lakhs through net banking fraud. A has committed bank fraud.
  • XYZ, a Noida based Logistics Firm, was duped of Rs 31.44 lakhs. Hence, XYZ is a victim of Bank Fraud.


The frauds reported by banks can be divided into three main sub-groups:

  • Technology related
  • KYC related (mainly in deposit accounts)
  • Advances related


There is a shift in service delivery model with greater technology integration in the financial services sector. Banks are increasingly nudging their customers to adopt newer service delivery platforms like mobile, internet and social media, for enhanced efficiency and cost-cutting. But while banks’ customers have become tech-savvy and started using online banking services and products, evidence suggests that even fraudsters are devising newer ways of perpetrating frauds by exploiting the loopholes in technology systems and processes.

The fraudsters have employed hostile software programs or malware attacks, in order to voicemail or text messages and use techniques not only to steal confidential data but also perpetrate funds.


Frauds are committed by way of replication of data contained in genuine debit/ credit cards onto duplicate cards. It is sufficient to say that the banks need to improve the peripheral and system security in ATM locations and, at the same time, educate their customers about using their payment cards with due caution.


Good Corporate Governance serves as a very important factor in control of fraudulent activities. The top management should ensure the steps such as fraud risk management, fraud monitoring and fraud investigation. They should be responsible for effective investigation of fraud cases and prompt, accurate reporting to appropriate regulatory and law enforcement authorities. The Boards of the banks/ ACB should ensure periodical review of the procedures and processes to ensure that the bank’s interests are not impacted adversely due to loopholes in their policy guidelines. Targeted fraud awareness training for its employees must be implemented by focusing on prevention and detection of fraud. The banks should constantly monitor the typology of the fraudulent activities in such transactions and regularly review and update the existing security features to prevent easy manipulation by hackers.


RBI has advised banks to introduce certain minimum checks and balances like :

  • introduction of two factor authentication in case of ‘card not present’ transactions,
  • converting all strip based cards to chip based cards for better security,
  • issuing debit and credit cards only for domestic usage unless sought specifically by the customer,
  • putting threshold limit on international usage of debit/ credit cards,
  • constant review of the pattern of card transactions in coordination with customers,
  • sending SMS alerts in respect of card transactions etc.,
  • to minimize the impact of such attacks on banks as well as customers.

RBI has advised banks to introduce preventive measures such as :

  • putting a cap on the value/ number of beneficiaries,
  • introducing system of issuing alert on inclusion of additional beneficiary, and
  • velocity checks on number of transactions effected per day/ per beneficiary.

RBI has further recommended Banks to consider introduction of digital signature for large value payments, and capturing internet protocol check as an additional validation check for any transaction, etc.


While the number of frauds reported each year is actually coming down, the amount involved is going up substantially. The large value advance related frauds, which pose a significant challenge to all stakeholders, are mainly concentrated in the public sector banks. While there is a pressing need to overhaul the system of monitoring, control, supervision and follow up of advances related frauds, their incidence in public sector banks in a large measure can also be trailed to comparatively poor corporate governance standards and lack of firm resolve by the Board and the Top Management in fighting this menace.

There is a need to improve exchange of information between all stakeholders to instill and maintain financial discipline among the users of funds and prevent negative information arbitrage to the detriment of the system. Board oversight of the audit processes and the internal systems and control must be able to identify vulnerable areas, raise red flags and plug loopholes quickly and effectively. There are considerable delays in reporting frauds to appropriate authorities, conducting investigation and fixing of accountability, which in effect leads to shielding of the main culprit while the blame is shifted to the junior level officials. This trend needs to be curbed immediately. Close liaison must be maintained with investigating agencies and courts to ensure timely completion of investigations and closure of cases. Society should demand stringent action against the perpetrators of financial frauds and should socially ostracize them. Banking system should collectively ensure that the fraudsters do not have access to banking facilities.

The advantages of technology, communication and accessibility of data must be leveraged to put in place a system wide fraud mitigation mission. A strong foundation is built by leveraging robust IT systems, framing effective policies and procedures, laying down strict compliance processes, setting high integrity standards, developing efficient monitoring capabilities and initiating strict punitive action against the culprits in a time bound manner.

Author Bio

More Under Fema / RBI

One Comment

  1. Subramanian Natarajan CPA says:

    The most appropriate topic. Well covered. Your final conclusion appreciated.
    Still will RBI sitting in Mumbai or any where be a mute witness? Nirav Modi blew his horns but. RBI as a regulator just kept quiet. Yes, public sector banks have their CEO in audit committee but maximum bank financing iñvolves maximum number of frauds. To whom should we complaint

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

September 2021