Banking sector upheaval

Financial irregularities and some renowned cases associated with it surfaced in the past like Vijay Mallya’s money laundering scam, Nirav Modi, and Mehul Choksi bank fraud case have always been in the limelight since these activities have been reported. Obviously, these are not the only bank frauds that have happened in India. As per the recent report released by RBI, India has lost nearly Rs. 100 crore every day in the past seven years to financial frauds, defaults, and scams. The panel of RBI Governor considers that such significant losses on account of fraud are due to a lack of good compliance culture in some of the respectable banks. More than fraud, this irregularity can also be recognized as an event in which a lot of people have defaulted on their bank loan. Such news gives rise to speculation that either bank is not assessing the credit history of their customers before giving out loans or ‘buy now, pay later’ schemes have been taking undue advantage.

Further examination, also surfaces how banks function. They are expected to work with utmost accountability, fairness, transparency, and effective intermediation because of the trust associated with the Indian banking system. Among other factors, avoiding an improper and undiligent default risk assessment should be a priority of the banking sector. If risk assessment is carried out on a proper basis, loans can be processed before the fraud actually takes place. These misappropriations result in crores of depositors’ money going down the drain, making the public pay the price. Frauds not only make the banking sector inefficient but also make people question the reliability and trustworthiness of our banking system.   

The Reserve Bank of India (RBI) reported a total of around 7,400 bank fraud cases in FY-21 across India, but on a lighter note, these numbers have decreased when compared to FY-20. Resultantly, the chunk of money involved in these scams has also consistently decreased in the country over the years since several measures and internal controls taken by the government and the finance ministry of the country.

Fig. 1: RBI Annual report 2019-20

It is undeniable that the number of frauds committed by government-owned banks has consistently exceeded 50% of all bank fraud cases. When such high levels of fraud are discovered in a company, it usually triggers a succession of inquiries, indictments, prosecutions, and punishments.

“Improved detection and reporting, including legacy stocks of NPAs (Non-Performing Assets) accompanied with comprehensive steps taken to check frauds, have resulted in a sharp decline in occurrence.” quotes the Finance Ministry on the matter. The amount has decreased sixfold from 67,200 crores to 10,000 crores from 2015-to 2022. With the highest number of frauds coming from the financial capital of India, Maharashtra reported 50% of the money involved followed by Delhi, Telangana, Gujarat, and Tamil Nadu.

However, the punishment for any bank fraud is Imprisonment for a term which shall not be less than 6 months but which may extend to 10 years, and a fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the scam when caught.

By Sakshi Pamnani

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