Banking fraud on the rise: Deloitte

A survey conducted by financial consultancy Deloitte has found that banks have witnessed a rise in the number of fraud incidents in the last one year, and the trend is likely to continue in the near future.

Titled "India Banking fraud survey - 2012", the survey found that an overwhelming 93 percent of the respondents indicate that there has been an increase in fraud incidents, 75 percent of them indicated that the same have increased by at least 5 percent as compared to the last one year.

The survey points to the increased difficult scenario for banks with increased fraud incidents and low recoveries, thereby directly affecting their bottom-line.

The average value of recovery for more than half of the respondents is less than 25 percent of the reported fraud losses. Also, the average loss per incident for nearly half the respondents is more than Rs 10 lakhs.

The Deloitte survey reveals that retail banking is most vulnerable to frauds followed by corporate banking.

A majority of the respondents who are actively involved in priority sector have also encountered significant number of fraud incidents in this area.

The future trends show that fraud will increase in the years to come with an overwhelming 83 percent of the respondents indicating that with the current economic scenario, the fraud incidents will increase 64 percent.

The surprising revelation is that respondents feel that in the coming years priority sector will contribute to increased fraud incidents and the new areas of focus appear to be administration, Deloitte said.

"Frauds are on the rise and no bank whether private, public or MNC is immune to fraud. As economic conditions continue to soften, it could lead to increased fraud risks," Neeta Potnis, Senior Director, Deloitte in India, said.

"The disconcerting part is that the recovery has been less than 25 percent according to more than half the respondents, indicating that banks are not able to recover losses in case of frauds.

"This trend in the context of corporate banking environment is significant given the fact that the value of fraud losses will be higher" Potnis added.

The survey questionnaire was sent out in November 2011 to leading banks in India and the respondents included Chief Risk Officers, Chief Compliance Officers, Heads of internal audit and other senior management personnel of the banks, Deloitte said.