“CAUSES, EFFECTS AND

MANAGEMENT OF FRAUD: A
STUDY WITH REFERENCE TO THE
INDIAN BANKING SECTOR
 Introduction
 Review of Literature
 Classification of Fraud
 Factors Causing Bank’s Fraud
 Effects of Fraud in Banks
 Fraud Management
 Conclusion
 References
 Fraud is a wrongful or criminal deception intended to result in
financial or personal gain. It is an aspect of corruption & it occurs in
organization where governance structure is weak.
 Fraud is rising across the banking product range and surfacing in
different forms across the globe.
 Banking Frauds constitute conscious misrepresentation, obtaining
possessions, money or other property which is owned or held by a
financial institution or depositors by using those means which are
against the law.
 Reserve Bank of India defines it as,
“A deliberate action of omission or commission by any person,
carried out in the course of a banking transaction or in the books of
accounts maintained manually or under computer system in banks,
resulting into wrongful gain to any person for a temporary period or
otherwise, with or without any monetary loss to the bank.”
Category No. of cases Amount involved

COMMERCIAL BANKS 169190 29910.12

NBFCs 935 154.78

UCBs 6345 1057.03

FIs 77 279.08

Total 176547 31401.01

 Account opening fraud: this involves a deposit
and cashing of fraudulent cheques .
 Cheque kiting: is a method where by a depositor
utilizes the time required for cheques to dear to
obtain an unauthorized loan without any interest
charge.
 Cheque fraud: most common cases of this kind of
fraud are through stolen cheques and forged
signatures.
 Counterfeit securities: documents, securities,
bonds and certificate could be forged, duplicated,
adjusted or altered and presented for loan
collection
 Computer fraud: hacking, tampering with a diskette to
gain access to unauthorized areas and give credit to an
account for which the funds were not originally intended.
 Loan fraud: when funds are lent to a non-borrowing
customer
or a borrowing customer that has exceeded his credit limit.
 Money laundering fraud: this is a means to conceal the
existence, source or use of illegal obtained money by
converting the cash into untraceable transactions in banks.
 Money transfer fraud: alteration of a genuine Funds
transfer request.
 E.g. Mail, telephone, electronic process, telex.
 Latest technology of using GSM phones.
 Telex Fraud: The messages that are passed
through telex in form of codes could be altered
to divert the funds to another account
 Letters of Credit: Most common in
international trading, these are instruments
used across borders ads can be forged, altered,
adjusted and take longer to identify.
 Advanced Fees Fraud: Popularly known as
‘419’, advanced fees fraud may involve agent
with an offer of a business proposition which
would lead to access often for a long term.
 (No. of cases in absolute terms and amount
involved in Rs. crore)
Sl. No. Year No. of cases Total
amount

1 2009-10 24791 2037.81

2 2010-11 19827 3832.08

3 2011-12 14735 4491.54

4 2012-13 13293 8646.00

5 Total frauds reported as of march 2013 169190 29910.12

 (No. Of cases in absolute terms and amount
Involved in Rs.Crore)
Sl. No. Bank group No. of % To total Amount % To total
cases cases Involved Amount
1 Nationalised banks 29653 17.53 24828.01 83.01
including SBI group
2 Old Pvt. Sector 2271 1.34 1707.71 5.71
banks
3 New Pvt. Sector 91060 53.82 2140.48 7.16
Banks
4 Sub total (private 93331 55.16 3848.19 12.87
banks)
5 Foreign banks 46206 27.31 1233.92 4.12

6 Total 169190 100 29910.12 100