A Study of frauds in banking sector & security measures taken by bank

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Banking and Insurance)

Under the Faculty of Commerce

By

Kajal Tripathi

Under the Guidance of

Ms. Foram Toprani

Guru Nanak College of Arts, Science and Commerce,

G.T.B. Nagar, Mumbai-400037.

2018-2019

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 Acknowledgement

I would like to acknowledge the following as being idealistic channels and fresh
dimension in the completion of this project.

I take this opportunity thank the University of Mumbai for giving me chance to
do this project.

I would like to thanks my I\C Principal Dr. Pushpinder G.Bhatia for providing
the necessary facilities required for completion of this project.

I take this opportunity to thank our CoordinatorMs. Janshi Rengaswamy for her
moral support and guidance.

I would like to express my sincere gratitude towards my project guidance Ms.

Foram Toprani whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various references
books and magazines related to my project.

Lastly I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.

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 Declaration

I the undersigned Mr. /Ms. Kajal Tripathi here by, declare that the work
embodied in this project work titled “A Study of frauds in banking sector &
security measures taken by bank forms my own contribution to the research
work carried out under the guidance of Ms. Foram Toprani is a result of my own
research work and has not been previously submitted to any other university for
any other Degree/Diploma to this or any other university.

Wherever references have been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.

Name and Signature of the learner

Certified by

Name and signature of the Guiding Teacher

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Guru Nanak College of Arts, Science and Commerce, G.T.B Nagar, Mumbai-
400037

Certificate

This is to certify that Ms. Kajal Tripathi has worked and duly completed her
Project work for the degree of Bachelor of Commerce (Banking and Insurance)
under the faculty of Commerce in the subject of Information technology in
Banking and Insurance-1 and his Project is entitled, “A Study of frauds in
banking sector & security measures taken by bank” under my supervision.

I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

Name and Signature of

Guiding Teacher

Date of submission:

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ABSTRACT

The number of bank frauds in India is substantial and it is increasing with the passage of time
and technology. The Indian banking sector has experienced considerable growth and changes
since liberalisation of economy in 1991.

The frauds may be primarily due to lack of adequate supervision of top management, faulty
incentive mechanism in place for employees; collusion between the staff, corporate borrowers
and third party agencies; weak regulatory system; lack of appropriate tools and technologies in
place to detect early warning signals of a fraud; lack of awareness of bank employees and
customers; and lack of coordination among different banks across India and abroad. The delays
in legal procedures for reporting, and various loopholes in system have been considered some of
the major reasons of frauds and NPAs. Keywords: Non-performing assets, Stressed assets,
Banking frauds.

Though the banking industry is generally well regulated and supervised, the sector suffers from
its own set of challenges when it comes to ethical practices, financial distress and corporate
governance. This study endeavours to cover issues such as banking frauds , with a detailed
analysis using secondary data (literature review and case approach) as well as an interview-based
approach, spanning across all players involved in reporting financial misconduct.

The study finally proposes some recommendations to reduce future occurrence of frauds in
Indian banking sector.

Keywords: Bank frauds, developing economy, RBI, internal control, use of technology.

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 INDEX

SR.NO PARTICULARS PAGE.NO

Abstract 5
1 Chapter no 1: Introduction 7-9
1.1Selection & relevance of problem 10
1.2Historical background of problem 11-12
1.3Concept of fraud 13-14
1.4Three elements of fraud 15
2 Chapter no 2: Research Methodology
2.1Objective of study 16
2.2Need of the study 17
2.3Signification of study 18
2.4Various aspects of bank fraud 19-22
2.5Reasons for bank fraud 23-24
2.6Classification of fraud 25-26
2.7Reporting of fraud 27-30
2.8Closure of fraud cases 31-32
2.9Types of fraud 33-38
2.10Recent trends 39-40
2.11 Relevant issues to tackle bank fraud in India 41-43
3 Chapter no 3 :Literature Review
Jeffords etal(1992) 44
Willson(2006) 44
Bhasin(2007) 44
Ganesh & Raghurama(2008) 44
4 Chapter no 4:Data Analysis & Interpretation 45-55
5 Chapter no 5:Conclusion & suggestion 56-59
6 Chapter no 6: Bibilography 60

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Chapter 01 Introduction :

BANKS are the engines that drive the operations in the banking sector ,money market and
growth of economy. With the growing banking industry in India, frauds in banks are also
increasing .
The Indian banking sector has experienced considerable growth and changes since
liberalisation of economy in 1991. Though the banking industry is generally well regulated
and supervised, the sector suffers from its own set of challenges when it comes to ethical
practices, financial distress and corporate governance.
In recent years, instances of financial fraud have regularly been reported in India. Although
banking frauds in India have often been treated as cost of doing business, post liberalisation
the frequency, complexity and cost of banking frauds have increased manifold resulting in a
very serious cause of concern for regulators, such as the Reserve Bank of India (RBI). RBI,
the regulator of banks in India, defines fraud as “A deliberate act of omission or commission
by any person, carried out in the course of a banking transaction or in the books of accounts
maintained manually or under computer system in banks, resulting into wrongful gain to any
person for a temporary period or otherwise, with or without any monetary loss to the bank”

A well-organized and efficient banking system is an essential pre-requisite for the economic
growth of every country. In modern era, banking industry plays an important role in the
functioning of organized money markets, and also acts as a conduit for mobilizing funds and
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channelizing them for productive purposes. It is universally accepted that for the smooth
functioning of a money market and economic growth of a country, an efficient and good
banking system is a must. The Indian banking industry is unique and has no parallels in the
banking history of any country in the world. After independence, the banking sector has
passed through three stages: character-based lending to ideology-based lending to
competitiveness-based lending.”

The frauds may be primarily due to lack of adequate supervision of top management, faulty
incentive mechanism in place for employees; collusion between the staff, corporate
borrowers and third party agencies; weak regulatory system; lack of appropriate tools and
technologies in place to detect early warning signals of a fraud; lack of awareness of bank
employees and customers; and lack of coordination among different banks across India and
abroad. The delays in legal procedures for reporting, and various loopholes in system have
been considered some of the major reasons of frauds and NPAs. Keywords: Non-performing
assets, Stressed assets, Banking frauds. Fraud is a social evil it affect the entire sector of the
economy which banking system is inclusive although fraud and loss in an expected part of
any business activity the scope and gravity is what creates concern in a developing economy
like ours. Fraud in banking sector is generally looked at as acts that involve the loss of asset a
through deceitful and dishonest means. It certainly constitutes one of the most serious threat
to the practice and spread of banking. Bank fraud is a criminal act that occurs when a person
uses illegal means to receive money or assets from a bank or other financial institution. Bank
fraud is distinguished from bank robbery by the fact that the perpetrator keeps the crime
secret, in the hope that no one notices until he has gotten away. The term bank fraud also
refers to attempts by a person to obtain money from a bank’s depositors by falsely pretending
to be a bank or financial institution. The financial services sector faces cyber and physical
threats from a great variety of sources as it is the most financially attractive sector. With the
increased usage of information and communication technology for various financial affairs
and with the increasing popularity of alternate channels of banking, a better security
infrastructure is the need of the hour for the Indian financial services sector.

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 What is Fraud?

Bank can be defined as an unethical and/or criminal act by an individual or organization to

illegally attempt to possess or receive money from a bank or financial institution.

Bank fraud is the use of potentially illegal means to obtain money, assets or other property
owned or held by a financial institution, or to obtain money from depositors by fraudulently
posing as a bank or other financial institution. In many instances, bank fraud is a criminal
offence. While the specific elements of particular banking fraud laws vary depending on
jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as
opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white
line cover.

The Institute of Internal Auditors „International Professional Practices Framework‟

(2009) defines fraud as, “Any illegal act characterized by deceit, concealment, or
violation of trust. Frauds are perpetuated by parties to obtain money, property or services; to
avoid payment, or loss of services; or to secure personal or business advantage.” It should be
noted that frauds generally impacts a bank by causing financial, operational or
psychological loss. Pasricha and Mehrotra (2014) observed that “one of the most
challenging aspects in the Indian banking sector is to make banking transactions free
from electronic crime.” All the major operational areas in banking offer a good opportunity
for fraudsters, especially in deposit, loan and inter-branch transactions. However, Bhasin
(2011) concluded, “Frauds generally take place in banks when safeguards and procedural
controls are inadequate, or when they are not carefully followed, thus providing ample
opportunities to the fraudsters. Frauds are increasing and fraudsters are becoming more
sophisticated and ingenious.” Similarly, a researcher Banks (2004) remarked, “Most of the
time, it is difficult to detect frauds well-in-time, and even more difficult to book the offenders
because of intricate .

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1.1 Selection & relevance of problem

Generally speaking professional fraud is new not just because it exposes the societies anemone
and raise important questions of public interest which follows this

 Fraud is banks nearly leads to lose of money ordinarily belongs to some one other
than the bank.
 In every bad conditions where fraud occurs with crippling frequency and in
wholesale sizes the bank may be forced to liquidate consequently and drastic
reduction of patronage in the banking sectors.
 The effect of fraud equally dastards management policy to encompass cheek and
control system which are by them costly to maintain.
 Bankers as a matter of urgency are expected to be very careful in the detection for
costing and prevention of fraud to help cub and cushion the effect of the menace.

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 1.2 Historical background of problem

Bank frauds and bank crises have been an integral part of Indian financial history. It is not
for nothing that in 1913, John Maynard Keynes after surveying the state of banking in the
country, wrote in Indian Currency and Finance, “In a country so dangerous for banking as
India, (it) should be conducted on the safest possible principles". His warnings have proven
prophetic.

In fact, scams in Indian banking far predate Keynes’s warnings. The year 2017 was the 150th
anniversary of the failure of the Presidency Bank of Bombay (PBB). The bank had been
started by the East India Company in 1840. It was stable and run prudently till the mid-
1860s. This was the period when the British started relying extensively on Bombay cotton
markets, as supplies from the US had declined due to the civil war. Thus, lots of cotton
companies and banks began to spring up in Bombay catering to a booming demand for
capital.

It is in this environment that PBB began to issue loans recklessly against shares of private
companies and even on just personal security. Then, as the civil war ended, the euphoria in the
Indian cotton market turned to panic. The hitherto stable bank came to a swift close. A new Bank
of Bombay was established immediately in 1868—financial institutions were, of course, central
to the colonial project.

If one reads into the details of the PBB scam as given in Amiya Kumar Bagchi’s history of
State Bank of India, the scam is not all that different from the recent events at PNB. The main
difference is that while PBB failed, hopefully neither PNB nor Bank of Baroda is headed in that
direction.
Even before PBB, there were several bank failures in Calcutta. Several banking organizations
mushroomed in the early 18th century, as economic activity concentrated in Calcutta. However,
again, the same problems surfaced—overextended balance sheets, accounting fraud, et cetera. At
the time bankers in Calcutta blamed the fact that banks had unlimited liability. Subsequently, in
1861, British authorities allowed banks to have limited liability, only for the PBB collapse to
show that accounting regulations and reforms can only do so much for prudent banking.

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One response to recent scams has been to point fingers at public sector banks, and suggest that
privatization would create the right incentives. But Indian history is, in fact, replete with banking
failures in the private and public sectors.
Fast-forward to 1905 and we see another period of euphoria in Indian banking, this time due to
the Swadeshi movement. Arising out of the political foment unleashed by the partition of
Bengal, the movement called for Swadeshi banks to fund Swadeshi enterprises.
The entrepreneurial response was overwhelming. By 1913, there were 451 banking companies
(accoring to Bakhtiar Dadabhoy's Barons of Banking). No prizes for guessing what happened
next. Following runs, prominent banks such as Indian Specie Bank and People’s Bank of India
collapsed. The case of Indian Specie Bank is interesting—it had forwarded large loans to a
prominent pearl merchant. When the merchant’s business collapsed, so did the bank. In
December 1913 one newspaper, The Colonist, said that if the bank’s management had released
balance sheets, the fraud could have been detected well in advance of the collapse. A refrain that
is all too common to this day.
Most of the banking failures in the 1910s took place in Punjab. In 1913-14, out of 54 closed
banks, 28 were from Punjab and 11 from Bombay. The location of failures then shifted
significantly towards southern India and West Bengal. The period of 1913-66 sees nearly 1800
banks failing—25% in Kerala, 21% in West Bengal and 20% in Madras.
For a while these collapses were blamed on the lack of a central bank. Indeed, nearly 350 banks
all over India closed between 1913 and 1934. In 1934 India finally got its own central bank. Sure
this central bank could now stem the rot in Indian banking?
Hardly. Banks continued to fail at an alarming rate. Between 1935 and 1947, nearly 900 banks
failed followed by 665 banks in the period from 1947 to nationalization in 1969. So much so, in
1950 an elderly citizen from West Bengal wrote to prime minister Jawaharlal Nehru complaining
that small depositors who lost their deposits in these banks "scheduled and affiliated [sic] by the
Reserve Bank" had come to the conclusion that the central bank was "only meant for the Big
Pandas who ... only know how to squeeze" the poor and who were "sleeping with oil in their
noses" (RBI History 1951-67).
.

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1.3 CONCEPT OF FRAUD

“There are three things in the world that deserve no mercy - hypocrisy, fraud and tyranny.” -
Frederick William Robertson. The saying signifies how dangerous frauds are for the society,
especially in financial terms. The Oxford dictionary defines fraud as a wrongful or criminal
deception intended to result in financial or personal gain. Fraudulent activities may result in
benefits for a very small fraction of the population, but at times the volume of these frauds
amount to alarming numbers. Cressey (1973) developed a model for explaining the factors that
cause someone to commit occupational fraud and named it fraud triangle. It consists of three
components which, together, lead to fraudulent behavior: Perceived unshareable financial need;
Perceived opportunity; Rationalization Fraud is any dishonest act and behavior by which one
person gains or intends to gain an advantage over another person. The gain may accrue to the
person himself or to someone else. Fraud causes loss to the victim, directly or indirectly. In
earthly terms bank frauds include all sort of misappropriations, embezzlements, and
manipulations of negotiable instruments (cheques, drafts, hundies, bills or statements of
accounts, securities etc.). Fraud also includes misrepresentations, cheating, thefts, undue favors
and irregularities.

The word fraud has been defined in law in the Indian Contract Act, section
17:

‘Fraud’ means and includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to
induce him to enter into the contract:

1. The suggestion as a fact, of that which is not true, by one who does not believe it to be
true; 2. The active concealment of a fact by one having knowledge or belief of the fact;

3. A promise made without any intention of performing it;

4. Any other fact fitted to deceive;

5. Any such act or omission as the law specially declares to be fraudulent.

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Fraud in the financial services industry poses a significant risk to institutions and integrity of
capital markets. Its effects can be widespread and cause not only long term financial but also
reputational damage. According to the survey financial sector is most vulnerable to fraud as
compared to other sectors. Moreover, the cost of fraud does not stop at a monetary figure; its
insidious nature has other serious implications including

• Reputation risk

• Adverse regulatory and media attention

• Reduced profits • Decrease in company value/share price

• Decreased efficiency of employees

• Negative impact on morale, trust and workplace culture

• Disruption in business continuity

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1.4 Three Elements of Fraud Detection

Frauds can be detected in all three elements. First, in the theft act, someone is a witness the
perpetrator taking cash or other assets. Second, in concealment, altered records or miscounts
of cash or inventory can be recognized. Third, in conversion, the lifestyle changes that
perpetrators almost inevitably make when they convert their embezzled funds are visible

Theft: The theft act involves the actual taking of cash, inventory, information, or other
assets. Theft can occur manually, by computer, or by telephone.

Concealment: It involves the steps taken by the perpetrator to hide the fraud from others.
Concealment can involve altering financial records miscounting cash or inventory, or
destroying evidence.

Conversion: It involves selling stolen assets or transforming them into cash and then
spending the cash. If the asset taken is cash, conversion means merely spending the stolen
funds.

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CHAPTER 2- RESEARCH METHODOLOGY

2.1 OBJECTIVE OF THE STUDY

The aim and objectives of this study are as follows:

 To establish the cause of fraud and event that facilitates this act.
 To find out the various forms and nature of commercial fraud that provide the
system To keep the general public aware of the hazardous effects of fraud in the
banking industry.
 To keep the management and its subordinate alert in a way to fight against fraud
among back employee they are customer shareholders and the general public.
 To find possible solution and control means of fraud in the banking system in a
bid to save the economy raise the profitability of bank and to save the image of
banking sector.

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2.2 Need of the Study

 In the banking sector due to increase usage of internet and other channels for
financial transactions there is an increase in the number of security incidents
threats/vulnerabilities.
In the current scenario, each bank is tracking and finding the resolutions for
the incidents independently without any collaborated effort between banks.
Each bank is facing the similar kind of security incidents.
 Having a common Center for analysis of risks and threats helps the bankers
in sharing the incidents as well as the resolutions across the banking sector. It
will act as knowledge repository of security incidents for the entire banking
industry.
 The requirement growing for information sharing and analysis in the financial
services sector in India.
 The advantage about forming such a body in India increases the technology
growth and faces challenges in financial sector services.

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2.3 SIGNIFICATION OF STUDY

The banking institution as an engine for economic development is specially designed to carry
out contains duties which eventually benefits the following interest groups are

● Industrial sector

● Agricultural sector

● Individual customers

● Government or public sector

INDUSTRIAL SECTOR:

Industrial seek loan and advance form commercial bank to meet their business financial
revilements. The bank accommodate them by providing permanent financial in the form of
loans the working capital needs are met through bank overdraft facilities. The funds are
however made available to loan seeker who met the lending condition laities of the banks.

AGRICULTURAL SECTOR:

Development banks are needed to finance specific project particularly the types which
private institution cannot easily be induced to finance specially when they are largely
experimental in nether taking the high risk that surrounds the agriculturist into consideration
such as gestation period nature disaster pest & disease. International Journal of Pure and
Applied Mathematics Special Issue.

INDIVIDUAL CUSTOMERS:

Banks as custodian of high liquidity keeps safe the customers deposits which are payable on
demand grants overdraft especially to current account holder discounts the customers
commercial papas and pays their customers a sum entire in money as ordered by their debtor.

GOVERNMENT OR PUBLIC SECTOR:

Bank is an avenue through which government controls the economic activities of the country
through the use of C.B.N as the apex bank that implements the monetary policy measures on
banks and other non-bank financial institution in the country.

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 2.4 Various aspects of bank frauds

Broadly, the frauds reported by banks can be divided into three main sub-groups:

1.KYC RELATED

After the international focus on KYC, RBI brought a paradigm shift in the approach to
KYC by banks in India. It moved away from introduction to document based identification -
hence introduction is no more required. It also shifted the focus from financial loss (from frauds)
to the banks to the loss of reputation to the banks (by non-compliance). The other principles are
that the KYC information collected is to be consistent with risk perception and other information
to be collected only with consent of the customer and the KYC related information is
confidential - not to be divulged for cross-selling or any other purpose. RBI has prescribed that
the KYC policy of banks should have the following key elements:

i. Customer Acceptance Policy

ii. Customer Identification Procedures
iii. Monitoring of Transactions, and
iv. Risk Management

If one were to carefully observe, each of the elements is intended to make the customer-bank
relationship a fraud-free one.

Fraudulent documentation involves altering, changing or modifying a document to deceive

the bank. It can also involve approving incorrect information provided in documents
knowingly (cases of connivance of bank staff with fraudsters). Deposit accounts in banks
with lax KYC drills/ inoperative accounts are vulnerable to fraudulent documentation.

2.ADVANCES RELATED

Frauds related to the advances portfolio accounts for the largest share of the total amount
involved in frauds in the Indian banking sector. Increase in the cases of large value fraud
(involving amount of Rs. 50 crore and above) in accounts financed under consortium or multiple
banking arrangements involving even more than 10 banks at times, is an unwelcome trend in the
banking sector. Another point that needs to be highlighted here is that public sector banks

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account for a substantial chunk of the total amount involved in such cases. Majority of the credit
related frauds are on account of deficient appraisal system, poor post disbursement supervision
and inadequate follow up.

a. Siphoning of funds takes place when funds borrowed from banks are utilised for
purposes unrelated to the operations of the borrower.
b. Diversion of funds includes any one of the following occurrences:
 Use of short-term working capital funds for long-term commitments not in
conformity with the terms of sanction
 Using borrowed funds for creation of assets other than those for which the
loan was sanctioned
 Transferring funds to group companies
 Investment in other companies by acquiring shares without the approval of
lenders
 Shortage in the usage of funds as compared to the amounts disbursed/ drawn,
with the difference not being accounted for
c. Over-valuation or absence of requisite collaterals

3.Technology related

In 2014, around 65% of the total fraud cases reported by banks were technology-related frauds
(covering frauds committed through / at an internet banking channel, ATMs and other payment
channels like credit/debit/prepaid cards). Business and technology innovations that the banking
sector is adopting in their quest for growth are in turn presenting heightened levels of cyber risks.
These innovations have probably introduced new vulnerabilities and complexities into the
system. For example, the continued adoption of web, mobile, cloud, and social media
technologies has increased opportunities for attackers. Similarly, the waves of outsourcing,
offshoring, and third-party contracting driven by a cost reduction objective may have further
diluted institutional control over IT systems and access points. These trends have resulted in the
development of an increasingly boundary-less ecosystem within which banking companies
operate, and thus a much broader “attack surface” for the fraudsters to exploit.

Hacking:
Hackers/fraudsters obtain unauthorized access to the card management system of the
respective bank. Counterfeit cards are then issued for the purpose of money laundering.
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Phishing:
A technique used to obtain your card and personal details through a fake email .

Pharming:
A similar technique where a fraudster installs malicious code on a personal computer or
server. This code then redirects clicks you make on a Website to another fraudulent Website
without your consent or knowledge

Vishing:
Fraudsters also use the phone to solicit your personal information.

Smishing:
It uses cell phone text messages to lure consumers in. Often the text will contain an URL or
phone number. The phone number often has an automated voice response system. And
again just like phishing, the smishing message usually asks for your immediate attention.

Debit card skimming:

A machine or camera is installed at an ATM which picks up card related information and
PIN numbers when customers use their cards.

Counterfeit instruments:
Fake cheques / Demand Drafts that look too good to be true are being used in a growing
number of fraudulent schemes, including foreign lottery scams, cheque overpayment scams,
internet auction scams and secret shopper scams.
With the growing business of mobile banking, it is essential that we devote exclusive space
and time to this aspect / mode of banking.

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Fake apps:
The first step in stealing money online is to steal information. This can be done by creating a
fake app outside a play store. Hackers create fake apps which will looks exactly as the
original one and the usage & interface is similar to the original app.

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2.5 Reasons for bank frauds

i. Lack of oversight by concerned officer’s w.r.t. deviation management: With existing

systems and procedures clearly defined, it is the onus on the senior management to allow
specific deviations. Lack of seriousness and knowledge regarding the same may create
havoc and lead to a fraud.

ii. Non adherence to KYC guidelines as prescribed by RBI: In the haste of increasing the
CASA base of respective branches (or any unit), KYC requirements are compromised. RBI
has recently fined banks for non-adherence to KYC norms. The concurrent auditor, who
visits the branch once in a month, points out those KYC guidelines which are not followed
by the branch and asks it to obtain proof and confirm. This takes another month or so.
During this lean period, fraudsters open deposit accounts, deposit forged stolen cheques and
withdraw the amount.

iii. Increasing business pressure on staff: Margins, profitability and shareholders

expectations being under strain, the management passes on to the middle management who
in turn have the same transmitted to the line staff. Staff may use unscrupulous methods to
achieve their respective targets.

v. Lack of tools to identify potential red flags: Some organisations even if they have the
correct, agile and educated managers, there may be absence of suitable systems to give
the necessary signals during the course of a loan turning bad or a KYC being violated
etal.
vi. The symptoms of poor internal control systems increase the chances of frauds. Internal
control symptoms include a poor control environment, lack of segregation of duties, lack
of physical safeguards, lack of independent checks, lack of proper authorizations, lack of
proper documents and records, the overriding of existing controls, and an inadequate
accounting system.
vii. vi. Changes in technology: The new technologies adopted by banks are making them
increasingly vulnerable to various risks such as phishing, identity theft, card skimming,
vishing, SMSishing, viruses and Trojans, spyware and adware, social engineering,
website cloning and cyber stalking. Banking transactions today have moved to debit/
credit cards and to electronic channels like ATMs, RTGS/ NEFT, ECS/NECS, Internet

23
 banking and Mobile banking. This has given a happy hunting ground to fraudsters. Infact
all these alternate channels are being promoted by each of the commercial banks to
reduce the pressure on branch banking.
viii. vii. Collusion between employees and external parties: Insider fraud, whether arising
from coercion, collusion, or otherwise, are increasingly considered to be one of the most
serious fraud threats faced by banks in India. Infact it does not require sophisticated
learning to decipher that the frauds happening today are not an act of an individual.
ix. viii. Inexperienced staff: People with no or little experience or exposure to
loans/advances are posted to branches which have large advances portfolio and are
compelled to process loan proposals.

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 2.6 CLASSIFICATION OF FRAUDS

 In order to have uniformity in reporting, frauds have been classified as under, based mainly
on the provisions of the Indian Penal Code:

a. Misappropriation and criminal breach of trust.

b. Fraudulent encashment through forged instruments, manipulation of books of account or through
fictitious accounts and conversion of property.
c. Unauthorised credit facilities extended for reward or for illegal gratification.
d. Negligence and cash shortages.
e. Cheating and forgery.
f. Irregularities in foreign exchange transactions.
g. Any other type of fraud not coming under the specific heads as above.

 Cases of 'negligence and cash shortages' and 'irregularities in foreign exchange

transactions' referred to in item (d) & (f) above are to be reported as fraud if the intention
to cheat/defraud is suspected/ proved. However, the following cases where fraudulent
intention is not suspected/proved at the time of detection will be treated as fraud and
reported accordingly:

(a) cases of cash shortages of more than ₹10,000 and

(b) cases of cash shortages of more than ₹ 5,000 if detected by

management/auditor/inspecting officer and not reported on the day of occurrence by the
persons handling cash.

 To ensure uniformity and to avoid duplication, frauds involving forged instruments may
be reported only by the paying banker and not by the collecting banker.

 However, in the case of collection of an instrument which is genuine but the amount
is collected fraudulently by a person who is not the true owner, the collecting bank,
which is defrauded, will have to file fraud report with the RBI.

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 In case of collection of instrument where the amount has been credited and
withdrawn before realisation and subsequently the instrument is found to be
fake/forged and returned by the paying bank, it is the collecting bank who has to file
FMR-1 with the RBI as they are at loss by parting the amount before realisation of
the instrument.

 Encashment of altered / fake cheques involving two or more branches of same

bank

 In case of collection of altered/fake cheque involving two or more branches

of the same bank, the branch where the altered/fake cheque has been
encashed, should report the fraud to Head Office of the bank. Thereafter,
Head Office of the bank will file the fraud report with RBI.
 In the event of an altered/fake cheque having been paid/encashed involving
two or more branches of a bank under Core Banking Solution (CBS), there
could be a possibility of dispute/difference of opinion as to whether the
branch where the drawer of the cheque maintains the account or the branch
where the encashment has taken place should report the matter to the Head
Office of the bank. In such cases also the branch which has released the
payment against an altered / fake cheque should report the fraud to the Head
Office. Thereafter, Head Office of the bank will file the fraud report with
RBI.

26
2.7 REPORTING OF FRAUDS TO RESERVE BANK OF INDIA

 Frauds involving amounts of less than ₹ 1.00 lakh

The cases of individual frauds involving amounts of less than ₹ 1.00 lakh are not to be reported
individually to the RBI. Statistical data in respect of such frauds should, however, be submitted
to RBI in a quarterly statement as detailed in Para 4.1.

 Frauds involving amounts of ₹ 1.00 lakh and above but less than ₹ 25.00 lakh

The cases of individual frauds involving amounts of ₹ 1.00 lakh and above but less than ₹.25.00
lakh should be reported to the Regional Office of Department of Cooperative Bank Supervision
of Reserve Bank of India, under whose jurisdiction the Head Office of the bank falls, in the
format given in FMR-1, within three weeks from the date of detection.

Frauds committed by unscrupulous borrowers

It is observed that a large number of frauds are committed by unscrupulous borrowers including
companies, partnership firms/proprietary concerns and/or their directors/partners by various
methods including the following:

(i) Fraudulent discount of instruments or kite flying in clearing effects.

(ii) Fraudulent removal of pledged stocks/disposing of hypothecated stocks without the bank’s
knowledge/inflating the value of stocks in the stock statement and drawing excess

Provisioning Pertaining to Fraud Accounts

It has been decided to prescribe a uniform provisioning norm in respect of all cases of fraud, as
under :

(a) The entire amount due to the bank (irrespective of the quantum of security held against such
assets), or for which the bank is liable (including in case of deposit accounts), is to be provided

27
for over a period not exceeding four quarters commencing with the quarter in which the fraud
has been detected;

(b) However, where there has been delay, beyond the prescribed period, in reporting the fraud to
the Reserve Bank, the entire provisioning is required to be made at once. In addition, Reserve
Bank of India may also initiate appropriate supervisory action where there has been a delay by
the bank in reporting a fraud, or provisioning there against.

REPORTS TO THE BOARD

Reporting of Frauds

Banks should ensure that all frauds of ₹ 1.00 lakh and above are reported to their Boards
promptly on their detection.

Such reports should, among other things, take note of the failure on the part of the concerned
branch officials and controlling authorities, and consider initiation of appropriate action against
the officials responsible for the fraud.

Quarterly Review of Frauds

Information relating to frauds for the quarters ending June, September and December may be
placed before the Audit Committee of the Board of Directors during the month following the
quarter, to which it pertains, irrespective of whether or not these are required to be placed before
the Board / Management Committee in terms of the Calendar of Reviews prescribed by the
Reserve Bank of India.

A separate review for the quarter ending March is not required in view of the Annual Review
for the year ending March prescribed below. The review for the year ended March may be
placed before the Board before the end of next quarter. i.e. for the quarter ended June 30.

Special Commitee of Board for Monitoring High Value Frauds

As delay in various aspects of frauds like detection, reporting to regulatory and enforcement
agencies and action against the perpetrators of the frauds had been causing concern, the need was
felt for paying focused attention on monitoring of frauds at the highest level and it was suggested
to constitute a subcommittee of the Board which would be exclusively dedicated to the
monitoring of fraud cases. It has therefore been decided that Boards of banks should constitute a
28
Special Committee for monitoring and following up cases of frauds involving amounts of Rs.1
crore and above exclusively, while ACB may continue to monitor all the cases of frauds in
general.

(i) The broad guidelines regarding constitution and functions of the Special

Committee of the Board are follows :

a) Constitution of the Special Committee

The Special Committee may be constituted with five members of the Board of Directors
including Chairman, two members from ACB, and two other members from the Board.

b) Functions of Special Committee

The major functions of the Special Committee would be to monitor and review all the frauds of
Rs.1 crore and above so as to;

c) Meetings

The periodicity of the meetings of the Special Committee may be decided according to the
number of cases involved. However, the Committee should meet and review as and when a fraud
involving an amount of Rs.1 crore and above comes to light.

Annual Review of Frauds

Banks should conduct an annual review of the frauds and place a note before the Board of
Directors for information.

The main aspects which may be taken into account while making such a review may include the
following:

a) Whether the systems in the bank are adequate to detect frauds, once they have taken place,
within the shortest possible time.

b) Whether frauds are examined from staff angle and, wherever necessary, the staff side action is
taken without undue delay.

29
c) Whether deterrent punishment is meted out, wherever warranted, to the persons found
responsible without undue delay.

d) whether frauds have taken place because of laxity in following the systems and procedures or
loopholes in the system and, if so, whether effective action has been taken to ensure that the
systems and procedures are scrupulously followed by the staff concerned or the loopholes are
plugged.

e) Whether frauds are reported to the local Police for investigation.

30
2.8 CLOSURE OF FRAUD CASES

Banks will report to the concerned Regional Office of Department of Cooperative Bank
Supervision of Reserve Bank of India under whose jurisdiction the Head Office of the bank falls,
the details of the fraud cases closed along with reasons for the closure where no further action
was called for. Fraud cases closed during the quarter are required to be reported in quarterly
return FMR-2.

Banks should report only such cases of frauds as closed where the actions as stipulated below are
complete.

a. The fraud cases pending with Police/Courts are finally disposed.

b. The examination of staff accountability has been completed.

c. The amount of fraud has been recovered or written off.

d. Insurance claim, wherever applicable, has been settled.

e. The bank has reviewed the systems and procedures, identified the causative factors and
plugged the lacunae and the fact of which has been certified by the Board.

Banks should also pursue vigorously with the Police/Court for final disposal of the pending cases
especially where the banks have completed staff side action.

31
GUIDELINES FOR REPORTING OF FRAUDS TO POLICE

Banks should follow the following guidelines for reporting of frauds such as unauthorised credit
facilities extended by the bank for illegal gratification, negligence and cash shortages, cheating,
forgery, etc. to the State Police authorities:

(a) In dealing with cases of fraud/embezzlement, banks should not merely be motivated by the
necessity of recovering expeditiously the amount involved, but should also be motivated by
public interest and the need for ensuring that the guilty persons do not go unpunished.

(b) Therefore, as a general rule, the following cases should invariably be referred to the State
Police:

i. Cases of fraud involving an amount of ₹ 1.00 lakh and above, committed by outsiders on their
own and/or with the connivance of bank staff/officers.

ii. Cases of fraud committed by bank employees, when it involves banks' funds exceeding ₹
10,000

32
2.9 Types of fraud

1. Identity fraud
2. Phishing
3. Hacking
4. Credit card fraud
5. Fraudulent loans
6. Stolen payments cards
7. Fake prizes
8. Inheritance scams
9. International lottery fraud
10. Wills and legacies

33
 1.identity theft

Identity fraud is often a two-stage process where your personal details are stolen and then used
for financial gain or other criminal activity. You might be left with debt, a poor credit rating or
other legal implications as a result.

Personal information such as your name, address, date of birth or bank account details can be
obtained by criminals in a number of ways including phishing, hacking

 Identity theft is the deliberate use of someone else's identity, usually as a method to gain
a financial advantage or obtain credit and other benefits in the other person's name.
Identity theft occurs when someone uses another's personally identifying information,
like their name, identifying number, or credit card number, without their permission, to
commit fraud or other crimes.

How identity theft happens

There are a lot of ways identity theft can happen to you. Hackers may get your information from
a data security breach. Or, you may unknowingly provide it on social media, during conversions
others can hear or by leaving financial documents in unsafe places. That information may
include:

 Social Security number

 Full name, address and birth date
 Credit card or bank account numbers
34
 Car insurance or medical insurance account numbers

2.Phising

Phishing is a type of social engineering attack often used to steal user data, including login
credentials and credit card numbers. It occurs when an attacker, masquerading as a trusted entity,
dupes a victim into opening an email, instant message, or text message. The recipient is then tricked
into clicking a malicious link, which can lead to the installation of malware, the freezing of the
system as part of a ransomware attack or the revealing of sensitive information.

An attack can have devastating results. For individuals, this includes unauthorized purchases,
the stealing of funds, or identify theft.

The following illustrates a common phishing scam attempt:

1. A spoofed email ostensibly from myuniversity.edu is mass-distributed to as many faculty

members as possible.
2. The email claims that the user’s password is about to expire. Instructions are given to go
to myuniversity.edu/renewal to renew their password within 24 hours.

35
 3.Hacking

Hacking occurs when a scammer gains access to your personal information by using technology
to break into your computer, mobile device or network. Hacking is identifying weakness in
computer systems or networks to exploit its weaknesses to gain access. Example of Hacking:
Using password cracking algorithm to gain access to a system

Computers have become mandatory to run a successful businesses. It is not enough to have
isolated computers systems; they need to be networked to facilitate communication with external
businesses..

4.Credit card

Credit card fraud is when someone uses your credit card or credit account to make a purchase
you didn't authorize. This activity can happen in different ways:

 If you lose your credit card or have it stolen, it can be used to make purchases or other

transactions, either in person or online.

 Fraudsters can also steal your credit card account number, PIN and security code to make

unauthorized transactions, without needing your physical credit card. (Unlawful

transactions like these are known as card-not-present fraud.)

36
Types of credit card fraud

1. Stealing a credit card

2. Using a lost or found credit card
3. Account takeover
4. Fraudulent applicatons
5. Card-not-present

5.Fraudulent loans:

One way to remove money from a bank is to take out a loan, which bankers are more than
willing to encourage if they have good reason to believe that the money will be repaid in full
with interest. A fraudulent loan, however, is one in which the borrower is a business entity
controlled by a dishonest bank officer or an accomplice; the "borrower" then declares bankruptcy

37
or vanishes and the money is gone. The borrower may even be a non-existent entity and the loan
merely an artifice to conceal a theft of a large sum of money from the bank. This can also be
seen as a component within mortgage fraud

6. Stolen payments card

Often, the first indication that a victim's wallet has been stolen is a phone call from a credit card
issuer asking if the person has gone on a spending spree; the simplest form of this theft involves
stealing the card itself and charging a number of high-ticket items to it in the first few minutes or
hours before it is reported as stolen.

38
2.10 Recent Banking Frauds In India

PNB scam
On February 14 this year, the state-run lender PNB shocked the entire banking industry of
India by revealing that it had been defrauded by Rs 11,400 crore allegedly by
billionaire jeweler Nirav Modi, his family members and business partner Mehul Choksi, owner
of the Gitanjali Gems at PNB's Brady House Branch in Mumbai. Following the scam,
employees of PNB including people at the general manager level were suspended from their
post for their suspected involvement in the biggest scam in the Indian banking sector. Also, the
government has revoked passports of Nirav Modi and Mehul Choksi.

SBI fraud case

State Bank of India (SBI) is at the forefront of a bank scam involving jewellery network
Kanishk Gold Pvt Ltd (KGPL). The KGPL has been accused of defrauding a consortium of 14
banks amounting Rs 824.15 crore bank fraud led by the SBI. The Enforcement Directorate

39
(ED) and CBI registered a case against Kanishk Gold.

.
ICICI Bank's Chanda Kochhar bank fraud case
ICICI Bank led the 31-bank consortium that extended credit to the tune of Rs 5280 crore
to Mehul Choksi's Gitanjali Group.
The Serious Fraud Investigation Office (SFIO) of the Ministry of Corporate Affairs on Tuesday
summoned the ICICI Bank CEO Chanda Kochhar and Axis Bank MD Shikha Sharma in relation
to the probe in Mehul Choksi's Gitanjali Gems fraud. BSE has also sought clarification from
both Axis Bank and ICICI Bank on the news report. ICICI Bank led the 31-bank
consortium that extended credit to the tune of Rs 5,280 crore to Mehul Choksi's Gitanjali
Group. ICICI Bank alone had given Rs 405 crore loan to Gitanjali Gems.
The Central Bureau of Investigation (CBI) has filed a case of criminal conspiracy and fraud
against the former chief executive of ICICI Bank Chanda Kochhar and her husband Deepak
Kochhar

40
2.11 Relevant Issues to tackle Bank Frauds in India

All the major operational areas in banking represent a good opportunity for fraudsters with
growing incidence being reported under deposit, loan and inter-branch accounting transactions,
including remittances.

Expect fraud:

Nowhere in the world the fraud can be avoided hence can the banks be no exceptions. It
is a human tendency of taking the risk to commit the frauds if he finds suitable
opportunities.
concentrated on the areas, which are fraud prone. Fraud is the game of two. The rule
makers and rule breakers. Whoever is strong in the anticipation of the situations wins the
game of frauds. Fraud is a phenomenon, which cannot be eliminated, but it needs to be
managed

Develop a fraud policy:

The policy should be written and distributed to all employees, Borrowers and depositors. This
gives a moral tension to the potential Fraudster. Maintain a zero tolerance for violations. The
Indian bank needs to roar against the action that is taken against the Fraudsters. The media
publicity against the fraudsters at all the levels is necessary. The announcement by US president
George W. Bush that the “Corporate crooks will not be spared” gave the deep impact to the
Corporate America. In India also we need to consider it as a severe problem and need to fight
against it.

Assess Risk:
Look at the ways fraud can happen in the organization. It is very important to study the
trend and the style of frauds in the bank. Some of the big nationalized banks maintain the
databases of the fraud cases reported in their banks. But the databases are dumb. They
yield nothing unless they are analyzed effectively. Establish regular fraud-detection
procedures. It could be in the form of internal audit or it could also be in the form of
inspections. These procedures alone discourage employees from committing fraud. In
addition to this the Institute of Chartered Accountants of India has issued a “Accounting
and Assurance standard on internal controls which is a real guideline to test internal

41
 controls. Controls break down because people affect them, and because circumstances
change.

Segregate duties in critical areas:

It is the absolutely basic principle of auditing a single person should not have the control
of the books of accounts and the physical asset. Because this is the scenario which
tempts the employee to commit the fraud. Hence it becomes essential to see that no one
employee should be able to initiate and complete a critical transaction without involving
someone else.

Maintain the tone of Ethics at the top:

The subordinates have the tendency to follow their superiors. When the signals are passed on
to the middle management about the unethical behavior of the top management the fear of
punishment gets reduced and the tendency following the superior dominates. Fear vanishes
when the tendency of “If I have to die I’ll take along the superior and die” tendency rises.

Review and enforce password security:

The incidences of hacking and the Phishing have troubled the Indian Private sector banks to a
great extent. In addition to this most of the Indian banks are running behind the ATM and
credit cards to compete with each other but have conveniently forgone the fact that ATM
cards and the credit cards are the best tools available in the hands of the fraudsters.
Inappropriate system access makes it possible to steal large amounts of money very quickly
and, in many cases, without detection. Hence the review and the enforcement of the security
policy is going to be a crucial.

Promote the Whistle blowing Culture:

Many of the surveys on Frauds have shown that the frauds are unearthed by the “TIPS” from
insider or may be from outsiders. Internal audits and internal controls come much later. The
message about contacting the vigilance officers is flashed in most of the branch premises.
However the ethics lines are very rarely seen.

42
Conduct pre-employment screening:

Since the raw material of the Banks is cash the banker needs to be more alert than any other
employer before they recruit. Only testing the aptitude of a person is not of any use. Know
whom you are hiring. More than 20 percent of resumes contain false statements. Most
employers will only confirm dates of employment. Sometimes post employment condition
might create the greed in the minds of employee, hence at least the bankers should test check
the characters of their subordinates by creating real life scenarios such as offering the bribes
by calling on some dummy borrower.

Screen and monitor Borrowers:

Bad borrowers cause the biggest losses to the banks. What are they? Whothey represent
themselves to be? Look at their ownership, clients, references, and litigation history. In many
cases the potential fraudsters have history of defaulting in some other bank or Financial
Institution. Though this is not the foolproof solution to the disease of the frauds to some extent it
helps to combat the frauds.

43
CHAPTER 3 LITERATURE REVIEW

Jeffords et al., (1992) “examined 910 cases during the 9 year period from 1981-1989 to assess
the specific risk factors cited. Approximately 63% of cases were classified under the internal
control risks.” Similarly, Calderon and Green (1994) “made an analysis of 114 actual cases of
corporate fraud from 1986 to 1990. The study found that professional and managerial employees
were involved in 45% of the cases.” Ziegenfuss (1996) performed a study to determine the
amount and type of fraud occurring in state and local government.

Willson (2006) examined “the causes that led to the breakdown of „Barring‟ bank as case study.
The collapse resulted due to the failures in management, financial and operational controls of
Baring Banks.” However, Bhasin (2007) “examined the reasons for check frauds, the magnitude
of frauds in Indian banks, and the manner in which the expertise of internal auditors can be
integrated in order to detect and prevent frauds in banks.” One important challenge for banks is
the examination of new technology applications for control and
Security issues.

As per the survey conducted by Ganesh and Raghurama (2008), about 80 executive from
Corporation Bank and Karnataka Bank of India. “Respondents were requested to rate their
subordinates in terms of development of their skills before and after they underwent certain
commonly delivered training programs.” Responses revealed that for the 17 skills identified,
there was improvement in the skills statistically. Moreover, another study to investigate the
reasons for bank frauds and implementation of preventive security controls in Indian banking
industry was performed by Khanna and Arora (2009). The study “seeks to evaluate the various
causes that are responsible for bank frauds. The result indicate that lack of training,
overburdened staff, competition, low compliance level are the main reasons for bank frauds.”
overburdened staff, competition, low compliance level are the main reasons for bank frauds.”

Chiezy and Onu (2013) “evaluated the impact of fraud on the performance of 24 banks in
Nigeria during 2001-2011, using Pearson correlation and multiple regression analysis. They
recommended that “banks in Nigeria need to strengthen their internal control systems and the
regulatory bodies should improve their supervisory role.”

44
CHAPTER 4 DATA ANALYSIS

As we can see 12.5% of people are having account in axis bank , 37.5% are having account in
HDFC bank,12.5% in ICICI bank & 37.5% are having their accounts in other banks.

45
As we can see 62.5% peoples are saying that their banks are gone through from fraud whereas
37.5% are are saying their banks have not gone through any kind of fraud.

46
Audit is very important in every bank .As we can see 25% peoples are saying that are bank are
audited 1 time, 50% of peoples are saying that their banks are audited 2 times 12.5%peoples are
saying theirs banks are audited 3 times & 12.5% are saying others.

47
As we can see 12.5% of peoples are saying that their banks had gone through credit card fraud ,
50% peoples are saying their banks had gone through cash fraud, 25% of peoples are saying their
banks had gone through fraudulent fraud & 12.5% are saying others.

48
As we can see 50% peoples are saying yes whereas on other side 50 % peoples are saying no.

49
As we can see 62.5% peoples are saying yes & 37.5% are saying no.

50
As we can see 50% peoples are saying yes, 25% peoples are saying no & 25% people have no
idea.

51
As we can say 12.5 % peoples are saying it is major problem, 50% peoples are saying it is minor
problem, and 37.5% peoples are saying that there is no problem.

52
As we can say 37.5% peoples are saying yes & 62.5% are saying no.

53
As we can see 37.5% peoples are saying quarterly , 12.5% peoples are saying half yearly, 37.5%
are saying annually ,& 12.5% are saying others.

54
As we can see 20% of peoples are saying it is increasing rapidly , 60% peoples are saying it is
increasing & 20% peoples are saying it is constant.

55
CHAPTER 5-CONCLUSION

The frauds may be primarily due to lack of adequate supervision of top management,
faulty incentive mechanism in place for employees; collusion between the staff,
corporate borrowers and third party agencies; weak regulatory system; lack of
appropriate tools and technologies in place to detect early warning signals of a fraud;
lack of awareness of bank employees and customers; and lack of coordination among
different banks across India and abroad. The delays in legal procedures for reporting,
and various loopholes in system have been considered some of the major reasons of
frauds and NPAs.

Also, despite efforts, banks have not been very successful in conviction of individuals
responsible for financial crimes. One of the root causes of this problem is identified
as lack of specialized financial sleuths with knowledge of nuances of forensic
accounting as well as a good legal understanding of frauds.

56
Suggestion

a.. There should be a dedicated cell within each bank to monitor the company/firm to which
they are lending and the macro-economic environment of the concerned industry or market
where products are marketed. This is independent of the credit officers. The job should be to
constantly evaluate and not just check the same during the time of on-boarding.
b. Re-KYC, if done diligently can also help check any fraudulent activities particularly on
the liability side. Infact, staff may be incentivized to do the same.
c. Triggers should be designed for all transactions. These should be for both liability as well
as borrowal customers. The triggers should alert concerned officials upon deviation.
Typically, banks have such alert mechanism for loan customers but liability is not a no-risk
area.
d. The government should consider examining the role of third parties such as chartered
accountants, advocates, auditors, and rating agencies that figure in accounts related to bank
frauds, and put in place strict punitive measures for future deterrence. There is also a case to
be made to question the certification/credentials of third parties like auditors to decide their
competence in evaluating accounts containing potentially fraudulent entries.
e. A new case of fraud should be informed to all officials of the bank. Nowadays with each
bank having their own intranet system for communication, a simple mailer with the names of
the officers / parties morphed may be circulated.
f. Feeding of information by various govt. agencies to banks should be made. Agencies /
authorities like Home Ministry, CBI, CBDT, CBEC, CVC, RBI atleast should regularly feed
banks with information if at all they get on an apriori basis.
g. Banks have traditionally focused their investments on becoming secure. However, this
approach is no longer adequate in the face of a rapidly changing threat landscape. Banks
should consider building cyber risk management programs to achieve three essential
capabilities namely: the ability to be secure, vigilant, and resilient.

57
Suggested Model
After studying the present problems and capabilities a fraud management solution can be
suggested using sophisticated information technology.

FRAMEWORK
OF FRAUD &
RISK
MANAGEMENT
STRUCTURE &
GUIDELINE

FRAUD
TRAINING MANAGEMENT AUDIT &
INVESTIGATION

SOLUTION

DATA
ANALYTICS
PROFILING &
ALERTS

58
RECOMMENDATION

To ensure smooth operation of the banking industry bank should ensure efficient system of
internal controls and that adequate internal control measures are put in place to safeguard the
assets the banks against theft. Misuse of improper disbursements , ensure that all accounts are
reliable and accurate. A good internal organisation should be put in place by banks. This will
ensure that proper delegation exists, duties and job, are clearly divided and that job do not
overlap. Similarly, staff members should not have unlimited access to sensitive machined and
instruments like cheques, and official stamp. Data security should be ensuring at all Times. The
banks however, should make it a point to take good care of their staff through fringe benefits and
Incentives job at the bank should be constantly rotated, so that no staffs stays in one position for
too long. Banks Management must also know their staff thoroughly well including their
background and anteced must be kept on all customers. Activities In the cash area in banks must
be monitored on a massive scale through the illustration of a cloe circuit television the bank
manager should ensure that qualitative technique of control is practiced. Techniques such as
constant inspections, security control, enhance remuneration, reassignment of staff, penalties,
and fraud detecting equipments. Banks education seminar, electronic monitoring equipments and
use of adequate supervision of document accounts.

Following recommendations are suggested for an early detection of frauds.

1. Independent specialized cadre.

2. Know your markets .
3. Internal rating agencies
4. Use of latest technology
5. Strong laws to prevent fraudulent financial reporting

59
BIBILOGRAPHY

https://www.iimb.ac.in/sites/default/files/2018-07/WP_No._505.

https://www.ijbmi.org/papers/Vol(5)7/version-2/A05720109.pdf

https://www.researchgate.net/publication/286134307_AN_EMPIRICAL_STUDY_OF_FRAUD
S_IN_THE_BANKS

https://www.google.com/

https://www.ibtimes.co.in/7-bank-frauds-that-have-rocked-indian-banking-sector-2018-765432

https://en.wikipedia.org/wiki/Bank_fraud

http://www.legalserviceindia.com/article/l261-Bank-Frauds.html

https://www.ijbmi.org/papers/Vol(5)7/version-2/A05720109.

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