Financial Crime World

Financial Crimes on the Rise: An Unsettling Trend in India’s Banking Sector

India’s banking sector, a critical engine driving the country’s financial system and economic growth, is under siege from an unwelcome threat: financial crimes. While the sector experiences unprecedented growth, financial frauds have emerged as a significant challenge.

Understanding Financial Crimes in the Indian Banking Sector

Fraudsters employ innovative techniques to infiltrate the banking sector, but no entity is completely impervious. The financial industry responds by implementing rigorous fraud prevention measures, toughening regulations, and educating citizens. To truly grasp the complexities of Financial Crimes in the Indian Banking Sector, let’s examine their definition.

Definition of Financial Crime

Financial Crime is a globally defined activity that generates illicit benefits or preserves existing ones [1]. It encompasses a wide range of offenses, including:

  • Fraud (cheque fraud, credit card fraud, mortgage fraud, etc.)
  • Theft
  • Scams
  • Bribery
  • Embezzlement
  • Identity theft
  • Money laundering
  • Forgery

A Financial Crime in the Banking sector, also known as Banking Fraud, is the unlawful acquisition of money, assets, or property owned by a bank or financial institution [2]. It can involve anything from a simple cheque fraud to a complex scam.

Adverse Effects of Banking Fraud

The consequences of banking fraud extend beyond monetary losses and damage to a bank’s reputation [3]. Fraudulent activities can erode trust and confidence of customers, affecting a bank’s profitability, operational efficiency, and long-term sustainability. In a worst-case scenario, these frauds can destabilize banks, impacting the nation’s economy and sovereignty.

Rapid Impact of Financial Crimes on Indian Banking Sector

Financial crimes in the banking sector are a growing concern in India [4]. While the number of cases may not have drastically increased, the value of these frauds has seen a significant escalation. According to the RBI’s 2019-20 annual report, banking frauds worth over Rs 1.85 lakh crore were reported in 2019-20, up from Rs 71,500 crore the previous year. Public sector banks accounted for 80% of these reported cases, while private banks contributed 18%.

Steps Taken by Reserve Bank of India (RBI)

In response to the persistent threat of financial crimes, the RBI introduced the Central Fraud Registry in 2015 to monitor and report such incidents [5]. The RBI’s proactive stance on financial crimes is further evidenced by their mandate for banks to report international frauds to the regulator.

Banks are expected to implement robust fraud risk management policies and practices to prevent financial losses [6]. CEOs play a pivotal role in this endeavor, as they are responsible for fraud prevention and management.

Certification Programs for Banking Fraud Investigation

Addressing the rising demand for skilled professionals in bank fraud investigations, the Certified Bank Forensic Accountant (CBFA) certification program was introduced [7]. This program, presented by Riskpro Learning and administered by Indiaforensic, aims to provide participants with comprehensive knowledge and expertise in the domain. As the banking industry grapples with financial crimes, the need for professionals equipped to fight this battle is more critical than ever.

[1] Financial Crime Definitions: Types, Categories, and Examples, Investopedia. Avaliable at: https://www.investopedia.com/terms/f/financialcrime.asp [2] ‘What is Banking Fraud?’, Investopedia. Avaliable at: https://www.investopedia.com/terms/b/bankingfraud.asp [3] Adverse Effects of Banking Fraud in India, Economic Times. Avaliable at: https://economictimes.indiatimes.com/small-biz/startups/adverse-effects-of-banking-fraud-in-india/articleshow/69540191.cms?from=mdr [4] ‘Financial frauds: The rise and rise’, Business Standard. Avaliable at: https://www.business-standard.com/article/current-affairs/financial-frauds-the-rise-and-rise-119013101185_1.html [5] Central Fraud Registry (CFR), Reserve Bank of India. Avaliable at: https://rbi.org.in/forms_masters/CFRA20151123.pdf [6] ‘The Role of CEOs in Fraud Prevention and Detection’, Deloitte Insights. Avaliable at: https://www2.deloitte.com/us/en/pages/risk/articles/operational-risk/the-role-of-ceos-in-fraud-prevention-and-detection.html [7] ‘Certified Bank Forensic Accountant (CBFA)’, Riskpro Learning. Avaliable at: https://riskprolearning.com/cbfa/