Co-operative bank frauds rise to Rs.727 crores

National Bank for Agriculture and Rural Development (NABARD) has pulled up regional rural banks, state and district cooperative banks for substantial rise in value of frauds. Present set up and capabilities to detect, monitor and take remedial action against frauds were highly inadequate, it said.

In a strongly worded communication to chief executives of rural banking institutions, rural banking regulator said banks had to rehaul there systems and capabilities to detect and control the menace (co-operative bank frauds).

The regulator conducted review of co-operative bank frauds and progress in recovery by the banks supervised by it. It was quite disturbing that although the number of outstanding frauds has marginally declined at end of March 2013 compared to previous year and the amounts involved have grown substantially.

 The amount involved in frauds rose to Rs 727.54 crore during period (ended March 2013) from Rs 611.77 crore a year ago. The increase in amount was largely attributed to a few high value frauds in the loans and advances segment.

In several cases, banks were either not reporting or reporting the fraud with the undue delay. The actual amount involved could therefore, be higher than the indicated amounts, NABARD said.

The regulator said there was also considerable delay in conducting investigations and fixing of accountability and recovery of amounts involved in frauds. During 2012-13 a meager amount of Rs 23.01 crore only was reported to have been recovered which accounts for only 3.8% of the amount outstanding at end of March 2012.

Dwelling on factors responsible for frauds, NABARD said one of the reasons was the absence of well documented system with defined authority and responsibility at each stage of operation.

The inadequate internal checks and control systems, lack of accountability and job specification of staff and absence of deterrent punishment for those involved in frauds also provided room for committing such breaches, it said.

The regulator said managements of some banks were not serious in getting the pending fraud cases reviewed at their board meetings. Most banks were yet to form Fraud Risk Group, it said.

As a step to get control over fraudulent transactions and practices, NABARD has advised banks to improve detection, monitoring and investigation capability of system.

Besides strengthening loan appraisal and sanctioning mechanism, banks should tighten their internal checks and balances. They should also develop efficient monitoring capabilities and initiate strict punitive action in all such cases in time bound manner, NABARD said.