Tag: frauds

Banks may set up central repository to tackle gold loan frauds

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Banks are exploring whether a centralised repository for reporting frauds in gold loans should be set up to tackle rising incidents of frauds amidst robust demand for these loans since the outbreak of Covid-19 pandemic.

The repository could help prevent/minimise gold loan frauds as lenders will be able to cross-check prospective borrowers’ record on the quality of gold they pledged for their earlier borrowings, said a senior public sector bank official.

Rise in gold loans

Loans against gold jewellery (LAGJ) portfolio of scheduled commercial banks (SCBs) soared by about 66 per cent year-on-yar (yoy) to ₹62,926 crore as at August 27, 2021, against ₹37,860 crore as at August 28, 2020, according to RBI data. SCBs LAGJ portfolio stood at ₹26,542 crore as at August 30, 2019.

Both internal and external frauds in gold loan business are the biggest risks, per an ICICI Securities report on gold loan.

“Banks are witnessing cases of these frauds in their gold loan portfolio in recent times.

“While specialised gold loan non-banking financial companies (NBFCs) are also seeing fraud cases in recent times, they are better placed in protecting themselves against such frauds,” said ICICI Securities Research Analysts’ Ansuman Deb, Kunal Shah and Vishal Singh.

The Analysts’ observed that internal fraud takes place when the company or bank’s own employees indulge in committing fraud. External fraud is a situation when a customer commits fraud by pledging fake collateral etc.

Banking expert V Viswanathan underscored that gold loan fraud can take place due to pledge of fake ornaments; and gold appraisers/valuers (either singly or in collusion with branch staff) getting their accomplices to take gold loans. Then there are cases of stolen ornaments being pledged.

“Aggressive expansion targets in gold loans puts pressure on branch officials. This leads to reliance on middle men to bring in borrowers or high dependence on appraisers or local staff. Accomplices are brought in by appraisers,” he said.

Further, if the appraiser/valuer knows that staff in a particular branch is not skilled in dealing with gold loans, word gets around fast locally, resulting in frauds.

Viswanathan noted that top performing branches get preferential treatment at head office or controlling office, resulting in fewer inspections. So, local staff are tempted to commit fraud.

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Karnataka Bank reports frauds of ₹160.35 cr in 2 cases

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Karnataka Bank Ltd has informed the BSE that it has reported to the Reserve Bank of India frauds in the credit facilities extended to two listed companies. The total amount of fraud reported in these two credit facilities stood at ₹160.35 crore.

The bank said both these accounts were classified as NPA (non-performing asset), and have been fully provided for. “As such, there is no impact on the financials of the bank going forward,” it said. An outstanding amount of ₹138.41 crore has been treated as fraud in the case of Reliance Commercial Finance Ltd, and 100 per cent provision has been made. The percentage of bank’s share in the multiple banking arrangement was 1.98 per cent. There were 22 lenders under multiple banking arrangement in this case. It said the company was dealing with the bank since 2014.

Also read: Karnataka Bank gets additional director

In the case of Reliance Home Finance Ltd, an outstanding amount of ₹21.94 crore has been treated as fraud, and 100 per cent provision has been made. The percentage of bank’s share in the multiple banking arrangement was 0.39 per cent. There were 24 lenders under multiple banking arrangement in this case. It said the company was dealing with the bank since 2015.

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RBI imposes Rs 6 cr penalty on BoI, PNB, BFSI News, ET BFSI

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MUMBAI: The RBI on Monday imposed penalty aggregating to Rs 6 crore on Bank of India and Punjab National Bank for contravention of norms, including one related to “Frauds – Classification and Reporting”.

A penalty of Rs 4 crore has been imposed on Bank of India and Rs 2 crore on Punjab National Bank.

In a statement, the RBI said the statutory Inspection for Supervisory Evaluation (lSE) of Bank of India was conducted with reference to its financial position as on March 31, 2019.

The bank had also conducted a review and submitted a Fraud Monitoring Report (FMR) dated January 1, 2019 pertaining to detection of fraud in an account.

Examination of the risk assessment report pertaining to the ISE and the FMR revealed non-compliance with/contravention of directions, viz., breach of stipulated transaction limits; delay in transfer of unclaimed balances to DEA Fund; delay in reporting a fraud to RBI and sale of a fraudulent asset, the statement said.

In a separate statement, the Reserve Bank said the statutory ISE of Punjab National Bank was conducted with reference to its financial position as on March 31, 2018 (ISE 2018) and March 31, 2019 (ISE 2019).

The examination of the risk assessment reports pertaining to ISE 2018 and 2019 revealed non-compliance with/contravention of the aforesaid directions, viz., delay in reporting of frauds and not ensuring data accuracy and integrity while submitting data on CRILC platform/ to RBI, it said.

In both cases, notices were issued to show cause as to why penalty should not be imposed on them for such violations of the directions.

The RBI, however, added that the penalties have been imposed based on the deficiencies in regulatory compliance and are not intended to pronounce upon the validity of any transaction or agreement entered into them with their customers.



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Private banks see 21% jump in frauds as online frauds rise, BFSI News, ET BFSI

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The public sector banks seem to have learnt a lesson from the multi-billion dollar Punjab National Bank scam and worked to put their processes in order.

The number of frauds in PSBS fell 34% during fiscal 2020-21, more than double the overall 15% decline in frauds in the banking system. Interestingly, frauds in private banks rose 21% during the period, according to the RBI annual report for fiscal 2021.

The share of PSBs in total fraud value shrank to 59.2% this fiscal, from 80% in fiscal 2020, while it rose to 33.5% in the case of private sector banks this fiscal. In fiscal 2020 private banks had reported a 18.4% share.

The RBI in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

Online frauds rise

The number of frauds in the online space shot up 34.6% at the end of March 2021. About 99% of the total frauds reported in the fiscal year gone by were from the advances category in value terms. However, the value of frauds in the advances category remained almost the same as compared to the last year and the incidence of frauds in the advance category have come down over the previous year.

In value terms, private banks reported a rise of 35% y-o-y in frauds during FY21, and PSBs have reported a decline of 45%.

The average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21. However, in respect of large frauds of Rs 100 crore and above, the average lag was 57 months for the same period. In terms of area of operations, frauds have been occurring predominantly in the loan portfolio (advances category), both in terms of number and value, RBI said.

Reducing frauds

In the current fiscal, the central bank is looking at enhancing the fraud risk management system, including improving the efficacy of early warning signal (EWS) framework, fraud governance and response system. This includes augmenting the data analysis for monitoring of transactions, introduction of dedicated market intelligence (MI) unit for frauds and implementation of automated unique system generated number for each fraud.

For an account declared fraud, banks have to make 100% provisioning of the outstanding loans, spread over up to four quarters.



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RBI Annual Report, BFSI News, ET BFSI

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The Reserve Bank of India in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

The RBI said the number of frauds reported in 2020-21 decreased by 15 per cent in terms of number and 25 percent in terms of value as compared to 2019-20. The share of PSBs in total frauds decreased while the number of frauds in private sector banks increased during the corresponding period.

Source: RBI Annual Report

Majority of the frauds have been occurring predominantly in the loan portfolio both in terms of numbers and value. However the value of frauds in advances category remained almost same as compared to the last year and the incidence of frauds in advance category have come down over the previous year.

As per the annual report the average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21.

Source: RBI Annual Report
Source: RBI Annual Report

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RBI imposes Rs 2 crore penalty on Standard Chartered Bank, BFSI News, ET BFSI

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Mumbai: The Reserve Bank on Thursday imposed a penalty of Rs 2 crore on Standard Chartered Bank-India for delays in reporting of frauds to it. The monetary penalty has been imposed on the bank for non-compliance with certain directions contained in the ‘Reserve Bank of India (Frauds – Classification and Reporting by commercial banks and select FIs) Directions 2016′.

“The penalty has been imposed… for delays in reporting of frauds to RBI, revealed during the statutory inspection of the bank with reference to its financial position as on March 31, 2018 and March 31, 2019,” the central bank said in a statement.

A notice was issued to the Standard Chartered Bank-India advising it to show cause as to why penalty should not be imposed on it for such non-compliance with the directions.

“After considering the bank’s reply to the notice and oral submissions made in the personal hearing, RBI concluded that the charge of non-compliance with aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” the statement said.

The central bank also noted that its action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.



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