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GOVERNMENT OF INDIA
MINISTRY OF FINANCE
LOK SABHA
UNSTARRED QUESTION NO: 1447
ANSWERED ON:  01.07.2019
Bank Frauds
Manish Tewari
Will the Minister of



FINANCE be pleased to state:-


(a) the details of the number of cases of bank frauds in the Reserve Bank of India (RBI) during each of the last five years, bank-wise and party-wise;
(b) the criterion used by the RBI/public/private sector banks to declare a transaction or a series of transactions as a bank fraud;
(c) the number of criminal cases registered in bank fraud cases and the number of such cases resulted in convictions and the status of each case during the said period, case-wise;
(d) the amount of money recovered by the public/private sector banks as a consequence of legal actions initiated by banks during the said period; and
(e) the details of the legal distinction between a bank fraud and a non-performing asset?



ANSWER
FINANCE MINISTER

(a) to (e): Comprehensive measures have been taken to tighten fraud prevention systems and deter perpetration of frauds in banks, including, inter-alia, the following:
(1) Government has issued “Framework for timely detection, reporting, investigation etc. relating to large value bank frauds” to Public Sector Banks (PSBs), which provides, inter-alia, that—
(i) all accounts exceeding Rs. 50 crore, if classified as Non-Performing Assets (NPAs), be examined by banks from the angle of possible fraud, and a report placed before the bank’s Committee for Review of NPAs on the findings of this investigation;
(ii) examination be initiated for wilful default immediately upon reporting fraud to RBI; and
(iii) report on the borrower be sought from the Central Economic Intelligence Bureau in case an account turns NPA.
(2) As per RBI’s instructions on wilful defaulters, lenders may initiate criminal proceedings against wilful defaulters, wherever necessary. Proactive action has been taken against wilful defaulters, with FIRs being registered by PSBs against 3,154 wilful defaulters.
(3) Fugitive Economic Offenders Act, 2018 has been enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. The act provides for attachment of property of a fugitive economic offender, confiscation of such offender’s property and disentitlement of the offender from defending any civil claim.
(4) PSBs have been advised to obtain certified copy of the passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than Rs. 50 crore and, decide on publishing photographs of wilful defaulters, in terms of RBI’s instructions and as per their Board-approved policy and to strictly ensure rotational transfer of officials/employees. The heads of PSBs have also been empowered to issue requests for issue of Look Out Circulars (LOCs).
(5) Central Fraud Registry (CFR), based on Fraud Monitoring Returns filed by banks and select financial institutions, has been set up by RBI as a searchable online central database for use by banks. In order to bring transparency and accountability in the larger financial system, bank accounts of 3.38 lakh inoperative companies were frozen over the last two financial years.
(6) For enforcement of auditing standards and ensuring the quality of audits, Government has established the National Financial Reporting Authority as an independent regulator.
(7) For management of fraud risk and to direct the focus of banks to early detection of loan frauds, prompt reporting to RBI and investigative agencies and timely initiation of staff accountability proceedings, RBI has issued a framework for dealing with loan frauds and Red Flagged Accounts (RFA), with timelines for actions incumbent on banks, for dealing with loan frauds of Rs. 50 crore and above, requiring banks to classify potential fraud accounts as RFAs based on observation/evaluation of Early Warning Signals noticed. The red flagging is done on an information technology platform where all banks report large exposure to entities/individuals so that other banks can be forewarned about fraud risk.
(8) RBI has issued a circular to all banks in February, 2018 to implement security and operational controls such as straight-through process between the Core Banking Solutions/accounting system and the SWIFT messaging system, enable time-based restrictions in SWIFT, review logs at regular intervals, undertake reconciliation, etc. in a time-bound manner.
(9) RBI has instructed banks to report deficient third party services (such as legal search reports, property valuers’ reports etc.) and ineffective action against collusion of these providers with fraudsters to the Indian Banks’ Association, which maintains a caution list of such service providers.
(10) Instructions/advisories have been issued by Government to PSBs to decide on publishing photographs of wilful defaulters, in terms of RBI’s instructions and as per their Board-approved policy, and to obtain certified copy of the passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than Rs. 50 crore.
(11) Government has formed an inter-agency coordination committee to look into the large value bank frauds.

As per the reports by Public Sector Banks (PSBs) to RBI, based on date of occurrence, the bank-wise details of number of frauds of Rs. 1 lakh and above for the last five financial years is at Annex, which shows continues decline in the number of frauds over this period.

With regard to the criterion used to declare a transaction or a series of transactions as a fraud, RBI has informed that in terms of RBI’s Master Directions on Frauds, in order to have uniformity in reports, frauds have been classified as under, based mainly on provisions of the Indian Penal Code:
(a) misappropriation and criminal breach of trust;
(b) fraudulent encashment through forged instruments, manipulation of books of account, fictitious accounts, and conversion of property;
(c) unauthorised credit facilities extended for reward or for illegal gratification;
(d) cash shortages;
(e) cheating and forgery;
(f) fraudulent transaction involving foreign exchange; and
(g) any other type of fraud not coming under specific heads as above.

The distinction between a bank fraud and a Non-Performing Asset (NPA) is that while a fraud is a criminal offence, an NPA is a loan or advance where the interest and/or instalments of the principal remain overdue for more than 90 days.

As per inputs received from the Central Bureau of Investigation (CBI), during the period from the year 2014 till 31.5.2019, 847 cases were registered with CBI by banks, out of which 371 cases are currently under investigation, 450 cases are under trial, 14 cases have been closed, four cases have resulted in conviction, court has ordered stay in two cases, and regular departmental action has been advised in six cases.

As per inputs received from PSBs, an aggregate amount of Rs. 2,06,586 crore has been recovered from NPA accounts during the last five financial years as a consequence of legal actions initiated.
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Annex
Lok Sabha Unstarred Parliament Question No. 1447, for 1.7.2019

Bank-wise data on number of frauds as reported by Public Sector Banks based on date of occurrence (amount involved Rs. 1 lakh and above)

Bank FY
2014-15 FY
2015-16 FY
2016-17 FY
2017-18 FY
2018-19
Allahabad Bank 35 20 63 11 12
Andhra Bank 40 58 36 37 11
Bank of Baroda 263 153 140 84 32
Bank of India 160 121 95 99 52
Bank of Maharashtra 64 36 34 32 38
Bharatiya Mahila Bank Limited 1 3 - - -
Canara Bank 153 89 48 50 24
Central Bank of India 121 79 59 56 45
Corporation Bank 75 57 52 12 5
Dena Bank 30 36 24 11 3
IDBI Bank Limited 92 130 91 94 99
Indian Bank 70 48 70 47 20
Indian Overseas Bank 113 74 53 34 30
Oriental Bank of Commerce 124 108 42 24 8
Punjab and Sind Bank 27 17 22 3 -
Punjab National Bank 142 142 101 108 33
State Bank of India 588 514 469 618

Associates banks merged with SBI with effect from 1.4.2017 236

Associates banks merged with SBI with effect from 1.4.2017
State Bank of Bikaner and Jaipur 18 8 5
State Bank of Hyderabad 25 18 6
State Bank of Mysore 26 75 12
State Bank of Patiala 17 15 6
State Bank of Travancore 16 22 15
Syndicate Bank 200 249 127 78 27
UCO Bank 65 36 31 41 27
Union Bank of India 117 95 83 69 15
United Bank of India 21 39 29 15 20
Vijaya Bank 27 57 32 22 2
Total 2,630 2,299 1,745 1,545 739
Source: RBI

Note: Comprehensive measures have been taken to prevent frauds including directions to banks to examine all NPA accounts above Rs. 50 crore from the angle of possible fraud, initiation of criminal proceedings, enactment of Fugitive Economic Offenders Act 2018, creation of Central Fraud Registry, empowering Bank Heads to request for issue of Look Out Circular, establishment of National Financial Reporting Authority, Straight through processing between Core Banking System and SWIFT, advice to banks to obtain certified copy of passport of promoters/directors of companies availing loan exceeding Rs. 50 crore etc.
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