If the Reserve Bank's admission is to be taken seriously, the size of frauds in the country may have almost grown to the annual financial budget of the state of Jharkhand.
The Reserve Bank answering an RTI query has revealed that in 2018-19, the total size of banking frauds was a mind-boggling Rs 71,542.93 crores. It took 6,801 cases for scheduled commercial banks and select financial institutions to reach that number. The financial budget for 2018-19 proposed by Jharkhand stands at Rs 80,200 crores.
The banking regulator was answering to an RTI [Right to Information] query posed by a PTI journalist on the size of banking frauds in the country.
The size of banking frauds has grown by a whopping 74 percent from the previous year. In 2017-18, the total frauds were Rs 41,167.03 crores from 5,916 cases.
The RBI also divulged that 53,334 cases have been reported in the past eleven fiscal years amounting to a total of Rs 2.05 lakh crores. The amount is nearly equivalent to the budget of Karnataka state. In 2018-19, a budget of Rs 2.09 lakh crores had been presented for the state.
The central bank also added in the PTI story as saying, "Cases of fraud reported to RBI are required to be filed by banks as criminal complaints with law enforcement agencies. The information in respect of action being taken or already taken is not available readily," the central bank said.
Cases involving frauds may not only be technology related frauds but also high-profile cases involving bankers themselves. For instance, in the case of diamantaire Nirav Modi, executives associated with Punjab National Bank have been alleged as playing an active part. In a case involving telecom irm Aircel, the CBI had named bankers such as MS Raghavan, CMD of IDBI bank, Kishor Kharat, MD & CEO of Indian Bank, Melwyn Rego, DMD of IDBI bank in the case.
Besides frauds, the banking system has also been replete with cases of wilful defaulters and even non-performing assets.
In the case of the wilful default of Kingfisher Airlines and Vijay Mallya, bankers led by State Bank of India have been on a wild-hunt for nearly three years. Case-history suggests that Mr. Mallya departed India on March 2 2016, a day prior to banks seeking the Supreme Court's order to prevent Mallya from flying off.
That, the bankers have invested time and resources in building up a case against Mallya in UK shows the determination in recovering Rs 9,000 crores loaned to the liquor baron. However, it had also been reported that most of Mallya's investments were abroad. In fact, a negligible or a fifth of his investments were in India. So, the big question, what collaterals did Mr. Mallya offer for those loans?
Other high-profile cases include Rotomac Scam estimated at Rs 3,695 crores, Kanishka Gold scam estimated at Rs 824.15 crores, Simbhaoli Sugar Mills scam of Rs 200 crores etc.
It may be an insinuation to suggest that insiders may be responsible in such frauds. However, the theory is not new and many including the Central Vigilance Commission (CVC) in a recent report had asked for strengthening of internal controls. The anti-corruption watchdog after analyzing nearly 100 top frauds and having found several loopholes had suggested several measures including formation of standard operating procedures for banks to follow.
But, given that frauds have increased from the previous year suggests that banks may have to invest time in some serious catching-up.
Frauds have been perennial and not limited to merely technology-related frauds such as cyber-induced phishing and malware attacks.
The rise in frauds has turned the spotlight on central agencies such as the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) in probing big-ticket bank fraud cases. In addition to them, the National Company law tribunal also plays a pivotal role in the banking system. The NCLT courts have been working on bankruptcy cases to ensure that banks get swifter resolution to ease pressure of non-performing assets.
What do you think can be done to reduce frauds in the country? Do drop your thoughts and suggestions in the comments section below.