Overview of Financial Crimes in Banking Sector of India

Financial Crimes in Banking Sectors

Banks are regarded as a vital part of the engines that drive the operations of the financial sector, money market as well as the growth of the economy as a whole. By the expeditious growth of banking industry in India, Financial Crimes in banking sector are increasing rapidly.

Fraudsters are using innovative techniques to carry on different type of financial crimes in Banking Sector. Banking Industry is not 100% secured against such threats. There is certain level of preparedness in associating with the fraud risk that takes place in the banks as a whole.

There are different ways to control these Fin-crimes. One can educate and train the citizens about the fraud prevention, to make the laws and regulations stringent, follow fraud mitigation and Fraud Prevention practices to curb down the financial crimes in banking sector. But to understand Financial Crimes in Banking Sector let us first go through definition of Financial Crime.

Definition of Financial Crime

According to globally accepted definition it is crime which generates the benefit illicitly or preserve the illicit benefit already generated and obtained. It includes fraud (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud (including insider trading), bank fraud, insurance fraud, market manipulation, payment (point of sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery; sedition; embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the production of counterfeit money and consumer goods.

Financial Crimes in Banking Sector

A Financial Crime in Banking sector (Banking Fraud) can be defined as potentially used illegal means to obtain money, assets, the property owned by any financial institution, by obtaining money from the depositor and fraudulently posing as any bank or financial institute. Banking fraud is regarded as the criminal offence in India. In the case of legal purposes credit unions and banks are also included that are federally insured. This includes Federal Reserve banks, the Federal Deposit Insurance Corporation (FDIC), mortgage lending agencies, and other institutions that accept deposits of money or other financial assets. Bank frauds are involved basically to defraud the financial institution.  From a simple cheque fraud to credit card skimming, it has a wide range.

Reserve bank of India defines banking fraud as an act of commission and / or abatement, which is intended to cause illicit gain to one person(s), entity and wrongful loss to the other, either by way of concealment of facts by deceit or by playing a confidence trick.

Adverse Effects of Banking Fraud

There are various instances of fraudulent act happening in banks on consistent basis that go overlooked & inconspicuous. Monetary loss and damage to the reputation & goodwill of the bank are most direct impact of frauds. Serious aberration & misapplication resulted into fraud will definitely raise question over tenability & utility of secured technological capabilities of the institution and their traditional method of protection.

Fraudulent activity will also subvert the profit & overall efficiency of banking services. It can corrode the productivity and adversely affect the interest of investor resulting into unexpected increase in operational & capital risk of the bank. Even, the extent of default in lending process has become so serious that it overburdened the securitization company. Because of the adverse effects of banking frauds in our country, it destroys the economy of the nation as well as its sovereignty.

Rapid Impact of Financial Crimes on Indian Banking Sector

Now days the most noticeable issue faced by the banking sector in India is the risk associated with the financial crimes at large and its impact. Frauds are one of the major challenges to be faced by Banking or financial sector of India. The impact of fraud in the Indian Banking Sector is due to the continuous rise of NPA’s in the Indian Banking Sector. It would also enlighten the rapid impact on the profitability of Indian Banking sector as whole.

In the recent years, Financial Crimes in Banking Sector reported a huge rise in India. The growth in the number of banking frauds over the years is marginal as compared to the growth in value of banking frauds is tremendously increasing day by day.  Even though in India, banking frauds have frequently been treated as one of the costs of transacting business after liberalization, their frequency tends to increase at large.

Steps taken by Reserve Bank of India (RBI) on Banking Frauds

In 2015, RBI has introduced a new mechanism for the banks to keep check on financial crimes. It introduced Central Fraud Registry. Reserve Bank of India (RBI) is regarded as central policy making and national-level regulatory body that keeps eye on over the entire banking industry as whole.  The banking industry in India designates the rapid increase in the financial Crimes are inevitable part of the business now a days.

Bank frauds increased more than two fold on delayed detection even as the RBI gave a mandate on the early warning signals by lenders. Bank frauds worth more than Rs 1.85 lakh crore were reported in the year ended June 2020 compared with over Rs 71,500 crore in the previous fiscal, according to the RBI’s annual report for 2019-20. Public sector banks are the banks that witnessed a 234% year-on-year rise in fraud cases which were accounted for 80% of the total such reported instances. Private Banks, which reported a more than 500% rise, formed over 18% of the total fraud cases. As per RBI, the bank frauds are taking place at large in loan portfolio.

As per RBI directives, banks are required to implement preventive measures by a way of internal checks to curtail the occurrence of banking frauds which in turn results in the financial loss of the banks.  Banks are required to frame their internal policy for fraud risk management and fraud investigation function with the approval of their respective Boards.

The CEOs of the bank are regarded as an important person. They have all the rights and decision to take. They are involved and also have a peculiar focus on the Fraud Prevention and the Management Function. Banks who have their branches in abroad, they have to report all the frauds that are taking place to the Reserve Bank of India immediately.

Financial Crimes Certification in India

Certified Bank Forensic Accountant is a very unique certification which offers a number of benefits to the aspirants. The Certified Bank Forensic Accountant Program is administered by Indiaforensic and is presented by Riskpro Learning is regarded as a premier certification in Financial Crimes domain. The programs standards are set to become skilled in the field of forensic accounting and Bank Fraud Investigations.

The title of Certified Bank Forensic Accountant will be awarded to the aspirants who will clear the examination with flying colors. Hence, this course is an exhaustive course which will cover all the aspects from start to end process in Bank Fraud Investigation. Kindly click here to know more about CBFA.