The Reserve Bank of India’s (RBI) Annual Report for 2024-25 reveals a staggering 194 per cent surge in the value of bank frauds, ballooning to Rs 36,014 crore from Rs 12,230 crore the previous year. This near-tripling of fraud amounts is a loud alarm for a system already grappling with trust deficits. While the number of fraud cases dipped to 23,953 from 36,060, the sheer scale of money involved tells a story of deeper rot. It’s not just about numbers; it’s about a failure to plug gaping holes in a sector that holds the economy’s lifeline.
If one look closely, public sector banks (PSBs) bore the brunt more, accounting for Rs25,667 crore of the frauds, a sharp rise from Rs9,254 crore a year ago. Private banks, meanwhile, reported more cases—14,233 compared to PSBs’ 6,935—but their share of the fraud pie was smaller in value.
The RBI points to a key driver for this trend: a reclassification of 122 cases worth Rs18,674 crore from previous years, reported afresh after a Supreme Court ruling on March 27, 2023. This legal nudge forced banks to come clean, exposing skeletons long buried in their books. But this isn’t just about better reporting but systemic vulnerabilities that fraudsters exploit with alarming ease.
On one hand, digital payment frauds ( card and internet scams) dropped sharply to Rs520 crore from Rs1,457 crore, with case numbers falling to 13,516 from 29,082. This suggests some success in tightening cybersecurity. But the real monster lurks in the loan portfolio, where frauds skyrocketed to Rs 33,148 crore from Rs 10,072 crore.
Advances, the bread-and-butter of banking, are now a playground for crooks, especially in PSBs, where loan-related frauds dominate. Private banks, while leading in the number of digital frauds, seem less plagued by big-ticket loan scams. Why? Perhaps because PSBs, with their bureaucratic inertia and political overhangs, are softer targets.
The RBI’s report lays bare an uncomfortable truth: private banks report more frauds by number, but PSBs lose more money. This isn’t just a statistical quirk—it’s a structural flaw. PSBs, burdened by legacy issues and lax governance, are bleeding billions, while private banks, nimbler but not immune, face a barrage of smaller, tech-driven scams.
The reclassification of old frauds, while necessary, only masks the ongoing failure to prevent new ones. The Supreme Court’s intervention may have forced transparency, but it’s a band-aid on a wound that needs surgery. What’s driving this fraud epidemic? Weak internal controls, for one. Banks, especially PSBs, have been slow to modernize risk management.
Loan approvals often hinge on outdated processes, leaving room for manipulation. Add to that the ever-present specter of collusion—insiders turning a blind eye or worse, abetting fraudsters. Digital frauds, though declining, thrive on customers’ naivety and banks’ half-hearted efforts at education. The RBI’s Master Directions on fraud risk management, updated post the Supreme Court ruling, are a step forward, but enforcement remains patchy.
The bigger question is accountability. Bank boards and top management must face tougher scrutiny. The RBI, too, needs to move beyond issuing guidelines to cracking the whip on non-compliance. Forensic audits, real-time monitoring, and stricter penalties for lapses aren’t just buzzwords are must.
The decline in digital frauds shows that focused action works. Why not replicate that rigor for loan portfolios?
One thing is clear. India’s banking sector can’t afford to be a sitting duck. With frauds hitting Rs 36,014 crore, the stakes are too high for complacency. The RBI’s data is a wake-up call, not just for banks but for regulators, policymakers, and customers. If we don’t act—fast—the next year’s numbers could be even uglier. It’s time to stop counting losses and start building defenses.
(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)
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