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Govt. takes Steps to reduce Incidence of Frauds in Banks

Bank Frauds - CBI - delhi - Taxscan

The Government has taken comprehensive steps to reduce the incidence of frauds in banks. The steps taken include, inter-alia, the following:

  • Government has issued “Framework for timely detection, reporting, an investigation relating to large value bank frauds” to Public Sector Banks (PSBs), for systemic and comprehensive checking of legacy stock of their non-performing assets (NPAs), which provides, inter-alia, that—
  • (i) all accounts exceeding Rs. 50 crore, if classified as 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.
  • 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.
  • PSBs have been advised to obtain a 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 Reserve Bank of India (RBI)’s instructions and as per their Board-approved policy and to strictly ensure the rotational transfer of officials/employees. The heads of PSBs have also been empowered to issue requests for issue of Look Out Circulars.
  • For enforcement of auditing standards and ensuring the quality of audits, Government has established the National Financial Reporting Authority as an independent regulator.
  • 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 a certified copy of the passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than Rs. 50 crore.
  • 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.

The impact of the above steps is reflected in RBI’s Financial Stability Report (FSR) of June 2019. As per FSR, systemic and comprehensive checking of legacy stock of NPAs of PSBs for frauds has helped unearth frauds perpetrated over a number of years. Details of the number of cases and amount involved in frauds of Rs. 1 lakh and above that occurred during the last three financial years (FYs), reported by Scheduled Commercial Banks (SCBs), as per inputs received from RBI, are as under:

FY of occurrenceNumber of casesAmount  involved

(in crore Rs.)

2016-173,92725,884
2017-184,228 9,866
2018-192,836 6,735

While repayment capacity and applicant’s liabilities, including tax liabilities, are relevant for such appraisal and assessment, processing of applications for appraisal, assessment, sanction and disbursement is also dependent upon availability of requisite details and documents to enable the bank to arrive at a decision in its commercial judgement with due regard to the technical feasibility and economic viability of the proposal and the creditworthiness of the applicant, in accordance with the bank’s Board-approved loan policy. Upon receipt of loan applications with requisite details and documents in support of technical feasibility and economic viability of the proposal and creditworthiness and repayment capacity of the applicant, banks appraise and assess the same for a decision regarding sanction and disbursement.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Rajya Sabha today.

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