Bank Fraud- A New Fashion
Bank fraud is a criminal offense that is committed when a person uses illegal or unlawful ways to steal money or assets from a bank or other financial institution.
Table of Contents:
- Introduction
- Meaning of bank Fraud
- Issues in Bank Fraud
- Definition of Fraud as per RBI
- Delayed detection of fraud
- Types of fraud
- Latest Trends in Bank Fraud
- Nirav Modi’s case
Introduction
Banks are the steering of the car which helps to drive the working in the financial sector, money markets and also led to the growth of the economy. There has been rapid growth and significant changes since liberalization in NEP in 1991. Though the banking industry working with proper security, regulations, and supervision, still the banking sector suffers from several challenges in its ethical practices, financial distress, and corporate governance. With the speedy growth of the banking industry in India, banking frauds are also increasing rapidly, and fraudulent people have started using new and innovative methods to achieve their goals.
Meaning of Bank Fraud
Bank fraud is a criminal offense that is committed when a person uses illegal or unlawful ways to steal money or assets from a bank or other financial institution. Bank fraud is different from bank robbery by the fact that the fraudulent person or robber keeps the crime secret, by hoping that no one notices until he has flown away. The term bank fraud also “refers to attempts by a person to obtain money from a bank’s depositors by falsely pretending to be a bank or financial institution.”
The criminal offense of bank fraud is deliberately involved in a conspiracy or deception intended to defraud a bank or financial institution, to obtain money or assets owned by the bank or financial institution. Bank fraud is also considered a white-collar crime. White-collar crimes are criminal acts that are committed by a person in the due course of business to have financial gain. These crimes are difficult to establish because they often involve high-tech systems and various people.
Issues in Bank Fraud
In recent years, the number of cases of bank fraud is rapidly increasing in India. Although banking frauds in India are sometimes treated as the cost of doing business, post-liberalization the rate, difficulty, and cost of banking frauds has been increased rapidly which causes serious concern for regulators and supervisors, such as the Reserve Bank of India (RBI).
Definition of Fraud as per RBI
RBI, the apex and regulatory bank of India, defines fraud as “A deliberate act of omission or commission by any person, carried out in the course of a banking transaction or the books of accounts maintained manually or under computer system in banks, resulting in wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank”.
According to RBI, bank and financial frauds constantly weaken the Indian economy. Though the government has launch initiative plans purposely designed for speedy detection of frauds and accountability, still, the number of cases of bank frauds reported in the year 2018-19 by the banks increased by 15 percent as we compared it to previous years. The Reserve Bank of India (RBI), in its latest annual report, has denoted that the rate of growth in bank frauds maybe not much important but the amount involved in frauds has raised by 73.8 percent. If we look into the data provided by RBI we can see that in FY19, the banking and financial sector reported 6,801 fraud cases involving a total amount of Rs 71,542.93Cr compared to 5,916 cases involving Rs 41,167.04 crore reported in 2017-18. As compared to this, other state banks reported 3,766 cases of frauds amounting to Rs 64,509.43Cr as compared to 2,885 cases involving Rs 38,260.8 crore.
Delayed Detection of Frauds
The shocking thing is RBI states that the banks took 22 months on average to find the fraud from its occurrence to its detection. These guidelines are provided by both the RBI and the government, especially after the Nirav Modi scam (The PNB scam)
The situation has gone worsen, in case of large frauds starting from Rs 1 billion or above amounting to Rs 522 billion reported during 2018-19, the average fall back was 55 months or we can say almost 6 years. According to the RBI report, the bank groups or public sector banks that constitute the largest market share in money lending, have reported for the huge amount of frauds reported in 2018-19. It was also followed by private sector banks and foreign banks.
Types of frauds
- Account opening fraud: these kinds of fraud involve a deposit and cashing of fraudulent cheques.
- Cheques kiting: It involves a method where depositors obtain an unauthorized loan without any interest until the cheques will be clear.
- Cheques fraud: this kind of fraud are generally used to happen viastolen cheques and Forged signatures.
- Counterfeit securities: IN this documents, securities, bonds and certificate which could be either forged or duplicated/adjusted/altered and presented for loan collection.
- Computer fraud: It includes hacking and tampering with floppy discs to gain access to unauthorized areas and fraudulently give credit to an account for which the funds are not initially intended.
- Loan fraud: It happened when a loan is given to a non-borrowing or a borrowing customer who has exceeded his/her credit limit.
- Money laundering fraud: this is a tool or a way to conceal the existing source or use illegal methods to obtained money by converting the cash into untraceable or unnoticeable transactions in banks.
- Letters of Credit: This is the most common way of fraud used in international trading. These are instruments used across borders that can be either forged, or altered, or adjusted and take a long time to identify.
- Advanced Fees Fraud: In this kind of fraud in which fraudsters asked businessmen and individuals to pay fees or prices for the stocks, securities or money, or any product with a promise to receive it in the future but have no intention to deliver the same.
Latest trends in bank fraud
According to the RBI report In the first half of the current fiscal year frauds reported by banks raised to a high amount of Rs 1.13 lakh crore, owing to delay in detection by lenders. As per the report, it also involved 4,412 cases of fraud starting from one lakh rupees or above.
In FY19, banks had reported 6,801 cases of fraud amounting to Rs 71,543Cr…
An analysis of the history of frauds reported between FY19 and FY20 shows a significant
The time gap between the date of fraud and its detection. RBI’s Financial Stability Report said the amount involved in frauds that happened between FY01 and FY18 was about 90.6 percent of the frauds which are reported in the year 2018-19 in terms of value.
Similarly, in the first half of FY20, 97.3 percent of frauds were reported via a value that occurred in previous financial years. During the first half of 2019-20, banks reported 398 cases which include a huge amount (above Rs 50 crore) worth Rs 1.05 lakh crore.
No other sector has demonstrated the damage that occurred from economic offenses in the way India’s banks have. For instance, the fraud at the Punjab and Maharashtra Co-operative Bank (PMC), led to the deaths of nine depositors. According to the data provided by RBI, we can see that if we take together, bank frauds such as the one at PMC have rapidly grown over the past decade. In its latest annual report, RBI estimated that the amount involved in frauds (of above ₨1 lakh) in Indian banks at Rs71, 543 crores in 2018-19, is raised by 74% from Rs41, 168 crores in 2017-18. The 2017-18 figure itself is a four-fold increase compared to four years ago.
Nirav Modi’s Case
Nirav Modi is one of the big diamond jewelers and designers in India. He was born in Surat, Gujarat. In 2017, he was also ranked at 57 in the Forbes list of billionaires. He is the founder of the Nirav Modi chain of diamond jeweler retail stores and Chairman of Firestar International (Firestar international is the parent firm of the Nirav Modi diamond store chain). Nirav Modi has 16 stores across the world such as Delhi, Mumbai, New York, Hong Kong, London, and Macau, etc. Currently, he is in the United Kingdom where he is seeking political asylum.
If we see diamonds are rare, and so is the chance of being a diamantaire. To be a one Nirav Modi defrauds the bank for more than Rs11, 300 crores. India’s one of the largest bank frauds happened in PNB’s Brady House branch, which is located near the Nirav Modi diamond boutique which is less than a kilometer away.
The world’s Diamond capital Antwerp, where Nirav Modi was brought up has opened one of his stores in Madison Avenue in New York. Priyanka Chopra Jonas, miss universe and the finest actress both in Bollywood and Hollywood was the brand ambassador of Nirav Modi’s diamond jeweler. Wharton dropout Nirav Modi with a net worth of $1.73 billion as per one the Forbes report. Nirav Modi has learned all the business trickle from his maternal uncle Mehul Choksi. Mehul Choksi is the chairman and founder of one of India’s most popular brands Gitanjali jewelers. Sotheby’s and Christie’s auction catalogs are the one which publishes finest jeweler, watches, arts, etc. and in 2010, Nirav Modi was featured on the cover of the catalogs and with this, he became the first Indian jeweler to be featured on the catalog. In the same year, his jeweler also pulls in Rs 60 crore at the Christie’s auction.
Nirav Modi have an eye on his sole aim to open 100 boutique retail stores across the world by the year 2025 like Arjun in Mahabharata had
Aimed in the eye of the fish but it seems too impossible, then this leads Modi to commit one of the biggest bank frauds.
Until now the government had revoked his passport and also seized all the assets of Nirav Modi which amounted to Rs1, 300 crores said Union Minister Ravi Shankar Prasad.CBI already issued a lookout notice against Nirav Modi. The fraud commit by Modi is 49 times the net profit for the quarter ending 31st December in the financial year of 2017-18 and more than twice the amount that the bank got under the bank recapitalization plan as posted by PNB.
On 28th Jan 2018: the bank filed a complaint to CBI in which they mentioned the fraudulent transaction done by Nirav Modi’s firm along with related bank officials. Further, on
On 04th Feb 2018: a look-out noticed was issued against Nirav Modi by CBI.
On 05th Feb 2018: Punjab National Bank reported by stock exchanges regarding the fraud.
On 14th Feb 2018: the bank informed that the magnitude of fraud is $ 1.77 billion.
A report was published regarding the fraudulent transactions. The report had not mentioned the name of the defaulter but as it is well-said media is like a police watchdog who can sense and smell every news and in this case also though the name was not mentioned media found out the name of the fraudulent and also the place where the Mumbai branch of PNB was situated which had allegedly issued LOUs according to which the bank raised the creditworthiness of the buyer for this diamond trader. The fraudulent transactions or LOU issuance had been taken place at Mid Corporate Branch Brady House, Mumbai.
It was also mentioned in the report that the fund which was raised for the payment of the Import Bills have not been utilized for the same. SWIFT is a network via which bank or financial institutes send messages to ensure secure transmit instructions, now
According to the FIR, SWIFT issued five messages to Allahabad Bank and three messages to Axis Bank in Hong Kong.
Now the main thing which becomes the main focus of tension is that in the statement made by PNB, the bank said based on the fraudulent transactions, various banks had to lend money to their customers abroad. In addition to this, it was also noted that the transactions were contingent in nature and the bank’s liability for this is entirely based on the law. Meanwhile, Joint Secretary in Department of Financial Services Lok Rajan said “I don’t think this is out of control or too big a worry at this point. That is my broad sense.”
In October 2017, when the scam of Rs11,400 crore comes in the highlights at that time Central government was attempted to provide relaxation to ailing PSBs, by announcing an Rs2.11 lakh crore capital which was an infusion to the sector.
Reuters opined “that the only good that could come out of the affair would be some fresh consideration to implementing better practices in public sector banking.”