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Frauds in the banking sector involving sums of over Rs 100 crore have declined significantly, with banks reporting cases worth Rs 41,000 crore in 2021-22 compared to Rs 1.05 lakh crore in the previous year. According to official data, the number of fraud cases in private as well as public sector banks dropped to 118 in FY22 from 265 in 2020-21.
In the case of public sector banks (PSBs), the total number of fraud cases of over Rs 100 crore declined to 80 from 167 in FY’21, while for private sector lenders such cases reduced to 38 in FY’22 from 98 earlier, as per the data. In terms of cumulative amount, it has come down to Rs 28,000 crore from Rs 65,900 crore in FY’21 for PSBs. For private sector banks, the reduction is from Rs 39,900 crore to Rs 13,000 crore in FY’22.
In a bid to check frauds, the RBI has been taking several steps including improving efficacy of Early Warning System (EWS) framework, strengthening fraud governance and response system, augmenting data analysis for monitoring of transactions and introduction of dedicated Market Intelligence (MI) Unit for frauds.
During 2021-22, the Reserve Bank of India (RBI) carried out a study on the implementation of EWS framework in select Scheduled Commercial Banks, in collaboration with the Reserve Bank Information Technology Private Limited (ReBIT).
Further, the effectiveness of EWS was assessed in select banks by using Machine Learning (ML) algorithms.
Earlier this year, State Bank of India (SBI) reported one of the biggest bank frauds in the country totalling Rs 22,842 crore, perpetrated by ABG Shipyard and their promoters.
This was much higher than the case involving Nirav Modi and his uncle Mehul Choksi, who allegedly cheated Punjab National Bank (PNB) of around Rs 14,000 crore through issuance of fraudulent Letters of Undertaking (LoUs).
Last month, the Central Bureau of Investigation (CBI) booked Dewan Housing Finance Ltd (DHFL), its former CMD Kapil Wadhawan, director Dheeraj Wadhawan and others in a fresh case involving Rs 34,615 crore, making it the biggest bank fraud probed by the agency.
A consortium of lenders led by Union Bank of India has alleged that the company had availed credit facility to the tune of Rs 42,871 crore between 2010 and 2018 from the consortium under various arrangements but started defaulting on repayments from May 2019 onwards.
The accounts were declared non-performing assets at different points of time by banks.
The bank alleged that the promoters along with others siphoned off and misappropriated a significant portion of the funds by falsifying the books of DHFL and dishonestly defaulted on repayment of dues.
This caused a loss of Rs 34,615 crore to the 17 banks in the consortium
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In a bid to check frauds, the RBI has been taking several steps including improving efficacy of Early Warning System (EWS) framework, strengthening fraud governance and response system, augmenting data analysis for monitoring of transactions and introduction of dedicated Market Intelligence (MI) Unit for frauds.
10:11 AM
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The Financial Services Institutions Bureau (FSIB), which will replace the Banks Board Bureau (BBB), will be much more than a mere headhunter to fill in key posts at state-run banks, insurers and other financial institutions (FIs).
According to an official order, reviewed by FE, the FSIB will advise the government on a suitable performance appraisal system for whole-time directors and non-executive chairmen of the state-run financial services institutions. It will build a data bank relating to the performance of public-sector banks (PSBs), FIs and insurance companies. It will advise the government on “formulation and enforcement of a code of conduct and ethics for whole-time directors” in these institutions. The FSIB will even help these state-run banks, FIs and insurers in developing business strategies and capital raising plans, etc.
These functions will be in addition to its role in recommending candidates for appointment as whole-time directors and non-executive chairpersons of public-sector banks (PSBs), financial institutions and public-sector insurers (PSI).
The FSIB will comprise a chairperson nominated by the central government; the secretaries of the departments of financial services and public enterprises; the chairman of the Insurance Regulatory and Development Authority of India; and a deputy governor of the Reserve Bank of India (RBI). Apart from them, there will be three members with knowledge of banks and other financial institutions, and three more with knowledge of insurance, according to the order.
Former BBB chairman Bhanu Pratap Sharma has been selected to head the FSIB for two years or until further orders. Sharma was at the helm of the BBB since 2018 until his term ended in April 2022. The government has also appointed three part-time members of the new entity (FSIB) who will be looking after affairs relating to PSBs and FIs–Animesh Chauhan, former chairman and managing director of Oriental Bank of Commerce; Shailendra Bhandari, former managing director and chief executive of ING Vysya Bank; and former Reserve Bank of India executive director Deepak Singhal.
Similarly, the government has decided to appoint three more part-time members to handle affairs relating to insurance—Usha Sangwan, former managing director of LIC; AV Girija Kumar, former CMD of Oriental Insurance and Sujay Banarji, former whole-time director of IRDAI.
In future, the FSIB chairman and the three members handling affairs relating to banking and financial institutions will be selected by a search committee that will comprise the governor of the Reserve Bank of India (RBI) and the secretaries of the departments of financial services and personnel and training (or such other secretary as may be approved for this purpose by the Appointments Committee of the Cabinet). Similarly, the part-time members relating to the insurance sector would be chosen by the chairman of the IRDAI and the secretaries of the departments of financial services and personnel and training.
“To avoid conflict of interest, the part-time members shall be either retired or, if working, be required to discontinue work. Further, such members shall have no commercial relationship with any commercial entity that has commercial relationship with any PSB or FI or PSI, and the central government may consult the regulator concerned in this regard,” according to an order by the department of financial services. The FSIB chairperson and part-time members will get a fee of Rs 50,000 per sitting.
“FSIB shall be a professional body with autonomy in its affairs and shall have its own secretariat. It may appoint a person, or take on deputation from RBI a person in the rank of chief general manager or general manager in RBI, to act as full-time secretary of its secretariat,” the DFS said.
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