Cases of fraud at PSBs rise nearly sixfold in FY24 over FY23

The rising number of fraud cases coincides with increased fraud amounts via Internet banking and cards business.

Instances of frauds in public sector banks (PSBs) jumped nearly six times in the 2023-24 over the previous fiscal, touching nearly 28,000 from 4,787, an analysis of eight PSBs' annual reports showed.

These frauds included borrowing and non-borrowing frauds like digital and cyber frauds, the reports showed.

Bank of Baroda reported the highest number of frauds in FY24 at 12,061. The bank reported only 784 cases of fraud in FY23. Punjab National Bank (PNB) was next, with 7,112 frauds reported in FY24 compared to 289 in FY23.

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Most of the frauds recorded by the PSBs were in the digital payments business and cards business while others were recorded in the loan portfolio. The Reserve Bank of India (RBI) too in its annual report for FY24 highlighted a similar trend in online fraud cases over the last two years. According to the report, online fraud cases rose by 708 percent in the last two years to 29,082. The rising number of fraud cases coincides with increased fraud amounts via internet banking and cards business.

On the flip side, among the larger PSBs, State Bank of India (SBI) reported a drop in the number of frauds. Total frauds at the country’s largest bank’s in FY24 were 1,586 against 2,755 in FY23, down 42 percent year-on-year. These frauds included instances involving compromising credentials like OTP or one-time password, card verification value, password, etc., by customers themselves or where no loss was caused to the bank, the lender had said.

Frauds rise but decline in value terms

While the number of frauds have spiked significantly, the total amount involved in these frauds has fallen. This is because most of the frauds that happened at the PSBs in FY24 were small-ticket online and card transactions.

The total amount reported in these frauds dropped to Rs 7,134 crore in FY24 from Rs 15,236 crore in FY23, a big 52 percent decline.

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In case of SBI, it reported a halving in the quantum of frauds to Rs 3,406 crore from Rs 4,878 crore in the previous year. At PNB, the value of the frauds in FY24 and FY23 stood the same at Rs 1,803 crore.

While banks are stepping up their investments and measures to curb fraudulent transactions, the regulator too has been cautioning lenders on the rise in instances.

Increased preventive focus

In the last three years, as a measure to combat cyber risks and beef up technology-related strengths, banks have started increasing their expenditure on their information technology (IT) framework. This comes alongside steps to upgrade IT systems and comply with regulatory norms. For instance, Indian Overseas Bank is planning to invest 15-20 percent more towards its IT infrastructure in FY25. The bank had invested around Rs 1,100 crore towards improving cyber security and other measures, said Ajay Kumar Srivastava, managing director and chief executive officer (MD and CEO).

After declaring its FY24 earnings, Bank of Maharashtra MD and CEO Nidhu Saxena said that the lender had spent Rs 800 crore in FY23 towards beefing up its IT infrastructure. In FY24, it spent Rs 900 crore and plans to spend more than Rs 1,000 crore in FY25.

Other than the PSBs, HDFC Bank said that it spends around 7 percent of its total expenditure on IT. “Initially, the capex (capital expenditure) would be slightly higher and the opex (operating expenditure) would have been lower. And now, as systems get commissioned, opex starts going up and capex starts coming down. So, it is a typical investment-cycle kind of spending. On average it's about 6-7 percent,” said Parag Rao, country head, payments, liability products, consumer finance and marketing, HDFC Bank.

Axis Bank’s technology and digital spends constituted 9.3 percent of its total operating expenses of Rs 9,319 crore during Q4FY24. Its MD & CEO Amitabh Chaudhry said the strong position of the bank’s products was due to the continuous investment in people, process and technology in the past five years.