As the foundation for both economic growth and financial stability, the banking
and financial sector is crucial to India's economy. However, a growing number of
incidences of fraud, forgery, and corruption have damaged this important
The first documented scams in the banking industry were insider
trading, stock manipulation, improper bookkeeping, overstated assistance, and
other types of irregularities. Over time, frauds in the industry have gotten
more complex and have spread to customer-provided technology-based services.
According to 93 percent of people in India claim that, fraud has increased over
the past two years, and this is hurting the Indian banking industry.
An unsettling undercurrent threatens to undermine confidence and integrity at
their very core at the throbbing center of India's economic machine, where
financial institutions serve as the conduits of wealth. The nation's economic
story has been permanently altered by the trio of fraud, forgery, and corruption
that has insidiously crept into the inner sanctum of banks and financial
India is making strong progress towards the future in areas like
digital innovation, international financial integration, and economic dynamism,
but there are still enormous obstacles to overcome, including the shadows cast
by dishonest people and structural weaknesses. This introduction acts as a
compass, directing us through the complex network of examples that best
represent the complexities of these financial offences.
A healthy Indian economy
is largely shaped by the banking system. A banking institution plays a crucial
and necessary function in contemporary society. It acts as a catalyst for a
country's economic growth and serves as the financial sector's major support
structure, according to advanced economy is required.
The conventional banking
procedure used in the financial industries has India has undergone a complete
paradigm shift throughout time. corrupt banking practices sector's reputation
was damaged by a lack of openness and inefficiencies brought on by inadequate
oversight. as well as the common good idea in banking. The liberalization and
globalization of the Indian economy in 1991 ushered in a period of
transformation. Giving the private sector enormous chances to spur the expansion
of the financial industry brought about radical changes.
changes were made to the banking industry through the Narasimham Committee to
bring strong stability, including the inclusion of prudential norms, control of
direct lending practises, reduction of priority sector lending due to ambiguity,
internal assessment of balance sheet & audit of banking institutions for
bringing transparency, and direct Reserve control of banking institutions. The
Indian Penal Code does not define fraud in any particular way. Even though the
Indian Penal Code specifies and contains penalty, fraud is still committed and
carried out through a variety of techniques.
Even the Indian Contract Act of
1872's Section 17 has a broad definition of fraud. It refers to a specific type
of agreement in which one party coerces the other with the goal to deceive by
suggesting certain facts that are false while leading the other party to believe
that the false facts are true. It is a type of arrangement in a legal
partnership when there is intentional non-disclosure of facts via the use of
deception and deceit. Every instance of fraud involves some aspect of unfair
advantage and excessive profit.
Adverse Effect of Fraud, Forgery and Corruption
There are several examples of fraud, corruption or forgery occurring at banks on
a regular basis that are ignored & covert. The negative impacts of fraud,
forgeries, and corruption penetrate the foundations of communities, economies,
and institutions, having far-reaching implications that go beyond monetary
losses. When these illegal acts go unchallenged, they seriously endanger
international peace and security. The effects of fraud, forgeries, and
corruption are undeniably negative from an economic standpoint.
The majority of
these operations are carried out by financial institutions, the backbone of
economies. The integrity of financial institutions is threatened by fraud, which
also erodes investor trust and stifles economic progress. Resource misallocation
brought on by corruption hinders markets' ability to operate effectively,
impedes fair competition, and stifles innovation. Societies lose vital
infrastructure when money meant for development projects is diverted to the
wallets of the dishonest.
The most immediate effects of frauds are financial
loss and harm to the bank's image and goodwill. A serious deviation and misuse
that led to fraud would undoubtedly cast doubt on the institution's conventional
methods of protection as well as the viability and usefulness of its guarded
technical capabilities. Customers' morale has been damaged by frauds involving
ATMs, Internet banking, and mobile banking, which has led to a lack of
confidence and trustworthiness in these services.
Fraudulent behaviour will also
undermine the overall effectiveness & profitability of financial services. It
can degrade productivity and harm investors' interests, which can lead to an
unanticipated rise in the bank's operational and capital risk.
It can significantly impede the expansion of the banking industry by causing
volatility in liquidity and causing capital adequacy standards to be improperly
managed. Even yet, the degree of lending process default has gotten to the point
where it has overwhelmed the securitization organization.
Here are a few instances of bank fraud in India:
- Scam at Bank of Maharashtra: Rs. 836 billion
- Scam at Syndicate Bank: Rs. 1,000 crore
- Scam at ICICI Videocon: Rs. 1,875 billion
- Rotomac Pens Scam: 3,695 Million Rupees
- PMC fraud: Rs. 4,355 billion
- Scam at ABG Shipyard: Rs 22,842 billion
- Foreign currency fraud at Bank of Baroda: Rs 6,000 crore
- Scam involving bribes for loans: Rs 8,000 crore
In India, there were 13,530 occurrences of bank fraud in 2023, according to the
Reserve Bank of India (RBI). This was a rise over the prior year and broke the
previous decade's trend. At Rs 30,252 crore, the sum involved in these scams was
almost cut in half.
One of the worst financial scams in Indian history was the PNB fraud. Through a
convoluted network of illegal transactions, diamond traders Nirav Modi and his
uncle Mehul Choksi cheated the bank of almost $2 billion.
Types of Frauds Occurring in Banks
It is sometimes conceivable that when a consumer opens an account with a bank,
certain preventative measures were not taken, such as adequate identification of
the person and his origin, leading to misuse through false or kind of
impersonation. In certain circumstances, there is a potential of theft and
purposeful manipulation of checks (either word removal, name change, or amount
specified change) for the purpose of payment.
It's likely that a fraudster used
a fake signature to remove a sizable sum of money from a customer's inactive
account. It is also conceivable for bank employees to be maliciously involved in
obtaining illicit funds by taking money from a customer's account without their
consent under the same category of fraud.
Either dishonestly manipulating the
passbook is possible, or bankers can pretend to be joint account holders without
the customer's knowledge in order to withdraw money. There are certain
improper business practises that might be applied to generate embezzlement in
the banking industry. With the use of a false signature and unauthorized
possession and use of a chequebook, it is simple for a fraudster or impostor to
In order to fool and scam consumers, it is also standard
practice to counterfeit checks and bank draughts. Fraudulent conduct happens
even in traditional banking practises when dealing with illiterate clients whose
financial service is based only on their thumbprint on the relevant paperwork.
Forged fingerprints are now a common ruse used to fool and con clients.
Fraud Arise in The Era of Modern Technology
The efficiency of financial services has undergone a significant transformation
as a result of the move from old banking practices (mostly on paper) to
contemporary practices. The main benefit of this transition is that financial
services now operate quickly and effectively without any inconsistencies.
Nowadays, practically all bank branches are computerized in order to offer
paperless services where it is practical. However, the scope of the rising cybercrime is worrying and causes serious concern. There aren't many fraud types
that are particularly weak.
Spy software, is used by scammers to crack passwords, log into systems, and
steal data in order to make money unlawfully. Another evil method used by
criminals to get unauthorized access to information stored in computer systems
is hacking. This method involves stealing the password. In addition to causing
unlawful financial gain, this deed also aims to permanently harm the other
Another dishonest practice is wiretapping, in which thieves
capture signals and obtain the password needed to withdraw money. This conduct
is made feasible by tapping the ATM machine's wire when a consumer uses it to
Systematic credit or debit card scams have been committed, in
which thieves utilize the card to make unauthorized cash withdrawals. Fraudsters
most frequently employ the duplication of credit cards. Credit/debit card fraud
includes both the theft of the card and the disclosure of private information,
such as the PIN, to a third party.
Deterrence and Prevention Methods of Fraud on Financial Institutions
For many organizations, notably financial institutions, fraudulent actions such
as asset theft, stolen checks, personnel fraud, fraudulent lending, electronic
fraud, accounting fraud, and falsified documents have become a significant
expense. To reduce the direct and indirect costs of fraud to a minimum, several
fraud prevention and detection techniques are already in use.
As a result,
respondents were also questioned about the best methods for deterring and
preventing fraud, which has been a major problem in most financial
organizations. To avoid costly internal fraud, financial organizations should
set password protection on their systems.
The usage of passwords can assist them
in preventing and detecting employee fraud by ensuring that workers are capable
of accessing the user's computers security. It might be carried out by making
access to functions that diverge from the ideal method password-required.
Furthermore, passwords need to be updated often. However, competitive pay and
suitable working conditions help prevent fraud in financial institutions.
Employees should frequently get good pay in order to discourage them from using
company funds for their own purposes in an effort to fulfil their social and
personal demands. The temptation is considerably greater for employees of
financial organizations who frequently work with or are close to cash.
Instances of fraud frequently include major human variables. To educate
personnel on the newest fraud strategies and schemes, thorough training
programmes are important. The significance of ethical behavior, adherence to
security procedures, and the recognition of red flags should be emphasized
throughout training. Financial institution employees who have the knowledge and
abilities to spot unusual activity and report it constitute a critical line of
defense against fraud.
It is essential to promote a transparent culture. Employees and stakeholders
have a way to report alleged fraudulent activity through whistleblower
programmes without worrying about being punished. While looking into reported
problems, institutions should preserve the privacy and protection of
whistleblowers. In addition to discouraging prospective wrongdoers,
whistleblower programmes serve as an early warning system that enables
organizations to handle problems before they become more serious.
It is crucial to encourage moral leadership inside financial organizations.
Setting the tone for an organization and promoting an ethical culture are
ethical leaders. Transparency, responsibility, and commitment to moral
principles should be prioritized in corporate governance practises. When leaders
model ethical behavior, it pervades the entire organization and fortifies it
against dishonest practises.
A comprehensive and cooperative strategy that incorporates technology,
legislation, staff training, internal controls, whistleblower programmes,
teamwork, and moral leadership is necessary to discourage and prevent fraud in
financial institutions. Financial institutions may create a strong defense
against fraud and support the overall integrity and stability of the financial
system by putting in place a comprehensive plan that tackles vulnerabilities at
It is clear how the general public, employees of banks and financial
organizations, and outsiders all play crucial roles in fraud, forgeries, and
corruption in those institutions. In banking and financial institutions, this
propensity must not exist. However, although there is law, it is not well
implemented. The Public Interest Litigation PIL has shown to be a powerful and
effective tool in the court's arsenal, allowing it to uncover numerous incidents
of corruption and frauds in public life and punish those responsible.
revealed the Hawala Scam, Urea Scam, Bihar Fodder Scam, St. Kit Scam, Ayurvedic
Medicine Scam, and unlawful Allotment of Government Houses and Petrol Pumps.
Fraud and corruption detection has grown to be a major issue. Surprisingly, this
occurrence is not localized to any one region, city, or nation. It exists all
throughout the planet.
To stop fraud, forgeries, and corruption, there must be
rigorous laws and harsh penalties. Through a number of rulings issued by the
Supreme Court of India, High Courts, District Consumer Redressal Forum, State
Consumer Redressal Forum, and National Consumer Redressal Commission, the court
has also played a part.
In order to stop fraud, forgery, and corruption in banks and financial
institutions, study of judicial functioning, inspection of anti-fraud,
anti-forgery, and anti-corruption measures, and the development of new
provisions are necessary. However, it is regrettable to see that only a small
number of institutions are committed to resolving the problem in a
well-thought-out, thorough manner.
Without wasting any time, banks must make
fraud prevention their top priority. They shouldn't limit their search for
solutions to only certain complex problems involving credit cards, retail loans,
etc. Their action plan and implementation should be in line with the guidelines
created in accordance with current banking regulations. The updating of their
regulations and accepted banking practices is equally crucial for effectiveness
and increased productivity in today's cutthroat industry.
- Zubair Ahmed Khan. "Fraudulent Practices in Banking Institutions: Legal Issues and Challenges." Guru Gobind Singh Indraprastha University, Dwarka, New Delhi., www.amity.edu/UserFiles/Journal/32.pdf. Accessed 4 Oct. 2023.
- Osei-Assibey, Mandella Bonsu, Li Kao Dui Zou, Muyun Evans Kwabena, Asare Isaac, Adu Amankwaa. "Corporate Fraud: Causes, Effects, and Deterrence on Financial Institutions in Ghana." European Scientific Journal, Oct. 2018, core.ac.uk/download/pdf/236413426.pdf.
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