Indian banks found ₹2.6 lakh crore frauds in first six months of FY20– only because RBI looked ‘closely’

• In the first half of the year, RBI identified ₹263,944 crore worth of frauds
  
  
• Some of these frauds date back to 2000-01, have remained effectively hidden for decades.
  
  
• This year however, frauds worth ₹1,000 crore each rose sharply swallowing up ₹44,951 crore from banks
  

The large piles of non-performing assets are not just toxic loans that turned bad – a chunk of them are frauds. The many loopholes in banks and a dormant regulator ensured that some of these frauds that date back to 2000-01, have remained effectively hidden.

This is what the Reserve Bank of India (RBI) had unearthed when it checked the books closely. Only in the first half of the year, it identified ₹263,944 crore worth of frauds, as per the financial stability report.

This year, there were 21 cases of fraud, each worth ₹1,000 crore and above. That’s a sharp rise⁠— only 14 such cases have been identified. The amount is also at a staggering ₹44,951 crore is twice the amounts identified twice that of all the five years combined. Over 97% of them all occurred in earlier years.

Here is a look at the number of frauds and the amounts involved.


Sins of the past

There is a glaring time gap between the occurrence and detection of fraud. “The amount involved in frauds that occurred between FY2000-01 and FY 2017-18 formed about 90.6% of the frauds reported in 2018-19 in terms of value. Similarly, 97.3% of the frauds reported in H1:2019-20 by value occurred in previous financial years,” said the report.

To put the delay in context, centennials were not even born when some of these frauds took place. “A systemic and comprehensive check of legacy stock of public sector banks’ NPAs (non-performing assets) for frauds during the first half of 2019-20 helped unearth frauds perpetrated over a number of years and this is reflected in an increased number of reported incidents of frauds in recent years,” the RBI report said.

It was also a time when the world was reeling from first domcom bust. Even during the sub-prime crisis of the US these frauds have remained dormant but now, the non-performing assets have piled up so much that they have become tough to ignore.

But now, RBI is working on an early monitoring system that can help identify frauds. “A sharpened focus on fraud response plan is being sought from the banks and for this, stricter timelines and clear cut guidance with respect to reporting of frauds and declaration and processing of red flagged accounts (RFAs) will be prescribed,” said RBI in the report.

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