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Banking Frauds in India.. ICICI Bank leads

In the last two days DNA, Mumbai has published two articles highlighting the current state of affairs in Banking Frauds in India. The reports are based on an RTI application and reveal the alarming state of affairs.

The first report from DNA which appeared yesterday (8th January) revealed that Mumbai was the leading city in India in terms of Banking Frauds.

The second report which appeared today (9th January) has indicated that ICICI Bank is a run away leader in the Fraud share with nearly 50% of frauds being reported from the Bank.

In the financial year 2010-2011, Banks in Mumbai reported 787 fraud cases involving Rs 1049 crores followed by Delhi with 335 cases amounting to Rs 269 cores.

The exact nature of the frauds have not been revealed since RBI refuses to acknowledge the break up. It is however expected that the Phishing and retail banking frauds will be high at least in number of cases.

What is also alarming is that the recovery rate of the fraud amount is negligible. For example, in the last 5 years, out of the total of Rs 1882 crores lost in Mumbai, only Rs 63 crores were recovered.

In the case of frauds in loan accounts often committed by large borrowers with influence and backed by corruption, Banks bear the loss. However, in respect of genuine losses suffered by retail customers through E banking vulnerabilities, customers are bullied into believing that it is all their fault and they should bear the losses.

Though RBI has instructed Banks to consider E banking frauds as operational risks and obtain insurance, Banks ignore the instructions and try to cut costs on security considering customers as Guniepigs against whom insecure technology can be hoisted.

The second report of DNA is even more alarming since it identifies the Banks in which frauds are highest. First of all, Private sector Banks which have around 25% of market share of business seem to have nearly 80% of the share of frauds. In the year 2010-2011, Public sector Banks reported 3700 cases of frauds while the Private sector Banks reported 15700 frauds. This shows a serious lack of fund security amongst the private sector banks.

Amongst such Banks ICICI Bank appear to occupy the leading position accounting for nearly 62% of the reported fraud cases.

Of the 5319 cases reported in the current year, 3304 cases were from ICICI Bank. Recently one of the security professionals posted a video showing how ICICI Bankís Internet Banking system was vulnerable. The DNA statistics goes to prove that the vulnerabilities have been exploited by the criminals. Since most of the E banking frauds involve transfer of funds to fraudsters accounts in the same bank, if there were 3000 Phishing cases in ICICI Bank, there would be not less than 10000 fraudsterís accounts with failed KYC. If RBI identifies these accounts information about which would be readily available in the FMR reports they would have to fine at least Rs 500 crores at the rate of Rs 5 lakhs per KYC failure.

It is regrettable to note that even SBI which is the most respected Bank in India has the dubious distinction of being the leading public sector bank with frauds of Rs 298 crores reported int he current year from 784 cases.

The reports raise serious questions to be answered both by RBI as well as Banks such as ICICI Bank. Letís wait for their responses.


January 9, 2012

Related Article: Mumbai Leads : ICICI Bank Leads


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