Banking Sector Frauds Have Gone up by Over 10%: Deloitte

Oversight, business pressures over unreasonable targets, lack of tools to identify potential red flags are said to be major causes.

Published: 23rd April 2015 04:43 PM  |   Last Updated: 23rd April 2015 04:44 PM   |  A+A-


MUMBAI: The number of frauds in the banking sector have increased by more than 10 per cent over the last two years, with retail banking witnessing highest number of incidents, says a report by consultancy firm Deloitte.

"Around 93 per cent of the respondents pointed out a substantial rise in fraud incidents, with more than half of the respondents having witnessed more than a 10 per cent increase (in fraud incidents) within their respective institutions," the report said. The 'Deloitte India Banking Fraud Survey Report Edition II' was based on the survey of 44 public, private and foreign banks. The report added that banks also witnessed a rise in the level of sophistication with which the frauds were executed.

"Retail banking was identified as major contributor to fraud incidents, with a majority of respondents indicating that they had experienced more than 50 fraud incidents in the retail banking segment in the last two years, with an average fraud loss of around Rs 10 lakh per incident," it said. However, the non-retail segment saw an average of 10 fraud incidents with an approximate loss of Rs 2 crore per incident, it added.

According to the report, some of the reasons that have been identified for the increase in fraud incidents include lack of oversight by line managers or senior management on deviations from existing processes, business pressures to meet unreasonable targets, lack of tools to identify potential red flags, and collusion between employees and external parties.

The common causes of frauds observed in corporate banking included diversion and siphoning of funds, whereas fraudulent documentation and absence/over-valuation of collateral were cited as the main reasons for fraud in retail banking, it said.

"While the banking sector has been amongst the first sectors in the country to adopt technology for business expansion and ease, they have not yet leveraged technology to the maximum extent, as part of their fraud risk mitigation efforts. "This is possibly one of the reasons why the sector continues to see a rise in fraud as well as delays in detection and recovery," said Deloitte Forensic Senior Director K V Karthik.

A majority of respondents said they were able to recover less than 25 per cent of the reported fraud loss occurred, the  report said. Nearly 30 per cent of the respondents indicated that it took them 6 to 24 months to detect fraud, relying largely on customer complaints, anonymous tips received through whistle-blowers and or during account audit or reconciliation.

There has been a substantial increase in dependence on technology in the banking sector and so has the level of sophistication in the way these frauds have been done, it said. "With cyber crime continuing to increase in volume, frequency and sophistication, it is not surprising that the top three areas giving sleepless nights to the survey respondents were Internet banking/ATM fraud, e-banking fraud and identity fraud," the report added.

There is a need for institutions to step up, understand and tackle any challenges they face in fraud mitigation, before the magnitude of fraud becomes unmanageable,"  Karthik said.


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