K. M.

AGRAWAL COLLEGE
Of Arts, Commerce & Science
GANDHARI, KALYAN (W) – 421 301 Tel No: 2315959
(NAAC Accredited A)

Project Report on:

FRAUD AND SCAMS IN BANKING SECTOR
Submitted By:
Mr. Pratik.S.Sakhalkar
Roll No: 41
T.Y.B.com (Banking & Insurance) [Semester V]
Submitted To:
University of Mumbai
Project Guide:
PROF. SUJEET SINGH
Academic Year:
2015-2016

K.M.AGRAWAL COLLEGE OF ARTS, COMMERCE & SCIENCE
[Accredited By NAAC A, KALYAN]

DECLARATION

I, Mr. PRATIK S SAKHALKAR, from K.M.AGRAWAL COLLEGE OF
ARTS, COMMERCE and SCIENCE, student of
INSURANCE [SEMESTER 5], SEAT No.

T.Y.BANKING &

Here by submit my project

report on FRAUD AND SCAMS IN BANKING SECTOR.
I also declare that this project which is the partial fulfillment of the requirement
for the degree of T.Y.B.com (Banking & Insurance) of the MUMBAI
UNIVERSITY is the result of my own efforts with the help of experts.

(Mr.PRATIK S Sakhalkar)
SEAT NO. _____

2

K. M. AGRAWAL COLLEGE OF ARTS, COMMERCE & SCIENCE
KALYAN (WEST) – 421 301.
(Affiliated By University Of Mumbai)

BACHELOR OF BANKING & INSURANCE

CERTIFICATE
This is to certify that Mr.PRATIK S SAKHALKAR ,
SEAT No.________ has satisfactorily carried out the project
work on the topic “ FRAUD AND SCAMS IN BANKING
SECTOR” for the Semester-V of T.Y.Bcom [BANKING &
INSURANCE], in the Academic Year 2015-2016.

Principal

Project Guide

Course Co-coordinator

External Examiner

3

4 .

M. 5 . M. I would also like to thank respected PROF. I am also thankful to all those seen and unseen heads which have been of direct and indirect help in the completion of the project. and his involvement in my project and timely assessment provided me aspiration and value guidance throughout my studies. AGRAWAL COLLEGE OF ARTS. COMMERCE & SCIENCE would like to thanks to my parents and own my debt to Mrs. I also take this opportunity to express my sincere gratitude to library staff which provided me with right information at right time.ACKNOWLEDGEMENT This Project is on FRAUD AND SCAMS IN BANKING SECTOR is a result of co-operation. COMMERCE & SCIENCE for giving me an opportunity to present as a creative outcome in the form of a project work. ANITA MANNA principal of K. I am student of K. Dr. AGRAWAL COLLEGE OF ARTS. hard work and good wishes of many people. SUJEET SINGH the co-ordinate for his guidance and constant encouragement. I express my deep gratitude to all my college friends and family members whose efforts and creativity help me in giving the final shape structure to the project work.

KALYAN DATE:- Signature of Project Guide 6 . SUJEET SINGH hereby certify that Mr.Y. PROF.PRATIK S SAKHALKAR student of T.B. PLACE: . Seat No. The information submitted is true and original to the best of my knowledge.B.CERTIFICATE I. ______ has completed project on topic FRAUD AND SCAMS IN BANKING SECTOR in academic year 2015-2016.I.

Present New Fraud Prevention Challenges 81-83 Case Study 84-85 Visit Report Conclusion 86 Web bibliography Annexure 88 87 89-90 7 . 7 8-14 15-16 17-41 42-50 51-53 54-56 57-58 59-60 61-62 63-72 73-75 76-77 78-80 13. NAME OF THE TOPIC PREFACE 1 2 3 4 5 6 7 8 9 10 11 12 Introduction To Bank Fraud Literature Review Categories Of Bank Frauds And Scams  Frauds Done by Insider  Frauds Done by Outsider Types Of Bank Frauds And Scams Computer Depreciation Effects Of Banking Frauds Bank Rules Regarding Bank Frauds Role Of Banker in A Bank Fraud Regulations Of Reserve Bank Of India Factors Of Banking Frauds  Internal Factors  External Factors Classical Fraud Motivation Model Fraud Detection In Real Time For Banks Actions Taken By Banks PAGE NO.INDEX SR NO.

.  To determine the effects of banking frauds and scams on the society.  To understand the various types of banking frauds and scams. In this project report every possible effort has been made to highlight the major aspects related to the topic by a comprehensive study of literature and by survey information. Internet sites. 8 . To make it easier different tabular and diagrammatic approach has been used which help in understanding the theme.  RESEARCH METHODOLOGY    Primary Data: My primary data consists mainly from my visit to the INDIAN OVERSEAS BANK KALYAN (w).  To suggest the measures and techniques for reducing the incidence of banking frauds and scams. OBJECTIVES  To understand the meaning of banking frauds and scams. To understand the Reserve Bank of India (RBI) rules to prevent banking fruds and scams and responsibility of bankers in banking frauds and scams. i. a market image as well as depicts phase of their life cycle to understand the company value in a better way.e.PREFACE It was a pleasurable experience for me to work on this project report “FRAUDS AND SCAMS IN BANKING SECTOR IN INDIA” It has not only helped me to enhance my knowledge about various strategies followed by the company but also reviewed my knowledge about training & job opportunities for the management students. I have tried my best to explore the truth in my project reality regarding the survey and understanding practical way of working.  To ascertain the factors which encourages the fraudulent activities in banks.    Secondary data: My secondary data consists of the information collected from various. Frauds and scams done by insiders and outsiders.  To understand the categories of banking frauds and scams. newspapers. Survey report and secondary data are an important document and contains information that can be used to find out what are the findings of the research. It gives brands.

CHAPTER NO-1 INTRODUCTION TO FRAUD Fraud can be seen as the intentional misrepresentation. and as much as various measures have been taken to minimize the incidence of fraud. misuse or harm the asset of a bank. Although this phenomenon is not unique to the rural banking industry or peculiar to Ghana alone. concealment. In the case of rural banks. while majority are there to enrich themselves by fraudulent means. It is instructive to know that many banking operatives have different reasons for joining various banks. Many have the intention of working for a short time in the banking industry (get whatever they could and find another job that is less demanding). the high incidence of fraud within the banking industry has become a problem to which solution must be provided in view of the large sums of money involved and its adverse implications on the economy. In the distress of banks. Fraudsters are constantly devising new 9 . or omission of the truth for the purpose of deception or manipulation to the financial detriment of an individual or an organization (such as a bank) which also includes embezzlement. Fraud and its management have been the main factor. This has become a point of great attention in the Srural banking sector as well as every organization in Ghana. among which is trying to prevent various fraudulent intentions of both staff and customers As it were frauds seem to have increased as new technology is born and more advanced techniques of enhancing business transactions have been developed. Fraud in its effects reduces the assets and increases the liability of any company. it still rises by the day because fraudsters always device strategic ways of committing fraud. theft or any attempt to steal or unlawfully obtain. this may result in the loss of potential customers or crisis of confidence of banking public and in the long run end up in another failed bank situation. Due to the upsurge of great viability in the rural banking sector. some are in the industry because of their love for banking and all it stands for. rural banks are faced with different kinds of challenges. its dynamic and fast expanding level of activities.

This is one of the reasons why it is essential to quickly diagnose any factor which may hamper the smooth functioning of the rural banking sector and urgently address such issues. 10 . Taking a walk down memory lane. updating old methods and trying out new techniques of bypassing these electronic systems meant to ensure high security of banking operations. The success of monetary policy. to a large extent. depends on the health of the banking institutions through which the policies are implemented. fraud in the industry has prevented many banks from achieving their goals. in these recent times and the rate at which fraudsters appear to have shifted their attention and directed their energies to banks. the nerve centre of the payment system. Whatever problems which militate against the proper functioning of the banking sector will invariably have multiplier effects on the other sectors of the economy. In view of the staggering sums lost to fraudsters by the Ghanaian financial sector. The banking sector plays a very significant role in the development of any economy. The introductions of automated systems that lose handwriting and fingerprint trails have not helped matters either.plans. the vessel endowed with the ability of money creation and allocation of financial resources and conduit through which monetary and credit policies are implemented. devising all unimaginable tactics to exploit loopholes in the control measures and capitalize on carelessness of the staff and customers. Banks in most economies are the principal depositories of the public’s monetary savings. Some banks were just seen in the physical as body and building whilst in reality they were already liquidated and many were already into distress.

standard of living & national wealth. . frauds & corruptions etc. sec 17 suggests that a fraud means and includes any of the acts by a party to a contract or with his connivance or by his agents with the intention to deceive another party or his agent or to induce him to enter in to a contract. 11 . & reliability confidence of the people & help to proceed towards under developed society. Fraud is any dishonest act and behavior by which one person gains or intends to gain advantage over another person. loyalty. Nowadays scams.MEANING OF FRAUD: The progress of business is depends upon expansion & diversification. In contractual term as described in the Indian contract act. national income etc. Fraudulent practices are like slow poisoning which destroy the system of faith . In the growing economy some unethical practices has been observed. Fraud has not been described or discussed clearly in the Indian penal code but sections dealing with cheating. Concealment. has entered in every sector. Fraud causes loss to the victim directly or indirectly. The indicators of growing economy are acceleration in per capita income. forgery counterfeiting and breach of trust has been discusses which leads to the act of fraud.

 “Deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements”. the company or its shareholders its creditors or any other person. 2013. . with intend to deceive. assets.Collins english dictionary.(1980). whether or not there is any wrongful gain or wrongful loss”. or other property owned or held by a financial institution. to gain undue advantage from or to injure the interests of. omission. or to obtain money from depositors by fraudulently 12 .DEFINITION OF FRAUD  “Deceit. concealment of any factor abuse of position committed by any person or any other person with the connivance in any manner. sharp practices or breach of confidence . -Laurence Sawyer (1988).  “Fraud is a false representation or concealment of material fact to persuade someone to part with something valuable”. trickery. perpetrated for profit or gain some unfair or dishonest advantages”. MEANING OF BANK FRAUD Bank fraud is the use of potentially illegal means to obtain money. .  “Fraud” in relation to affairs of a company or any body corporate to include any act.Section 447 of the Companies Act. –Elliot and Willingham.

the term bank fraud applies to actions that employ a scheme or artifice. Unlike ordinary thefts and robberies. Frauds in Indian banks only prove that financial liberalization aggravates the inherent tendency of shallow markets to foster excessive speculation and worsens the systemic consequences of such speculative activity. However the prima donna in the drama is the insider or the banker. Any organization which deals with money is always vulnerable to frauds and this is more so in the case of financial institutions like banks which are dealing only in money and that to as a business commodity. He is often the target and at times the tool. banking becoming impersonal and increase in banking sector have gave rise to this white collar crime. bank fraud is sometimes considered a white-collar crime. Occasionally. lack of trained staff for the expanding network and a shift from the security oriented lending to the development oriented approach i. Revelations of fraud. Banking frauds constitute a considerable percentage of white-collar offences being probed by the police. The reasons for increase in number of frauds in the post nationalization period is attributed to a numerous reasons. bank fraud is a criminal offence. loan and inter-branch accounting transactions. defined as planning to obtain property or money from any federally insured financial institution. including remittances.posing as a bank or other financial institution. he is the 13 . The number of bank frauds in India is substantial. in a survey made till 1997 bank frauds in nationalized banks was of rs. evidence of insider trading and a consequent collapse of investor interest have led to an almost unstoppable downturn in Indian banks. the most likely ones are the widespread branch network. All the major operational areas in banking represent a good opportunity for fraudsters with growing incidence being reported under deposit. It has become a big business today. In many instances. He opens the purse.497. The graph of fraud money is mounting steeply.60 crores. Bank frauds are the creation of professional criminals. a major one is financial frauds caused in the banks popularly know as “bank frauds”. advances to the priority sectors. it is sometimes considered a white collar crime. The occurrence of frauds in the banks is not a recent observable fact.e. Bank frauds concern all citizens. the amount misappropriated in these crimes runs into lakhs and crores of rupees. For this reason. Bank fraud is a big business in today’s world. as opposed to bank robbery or theft. it in increasing with the passage of time. Of the inestimable types of financial offences that our nation and all countries across the globe have had to eyewitness and undergo from. with more educational qualifications. While the specific elements of particular banking fraud laws vary between jurisdictions. desperate customers or of errant bankers or their collusion inter se. Bank fraud is a federal crime in many countries. in fact the misdemeanor of forgery is perhaps as old as writing itself. Bank frauds are on the augment.

manipulations of negotiable instruments (cheques. Also included are misrepresentations. handiest. connivance and ignorance. cheating. The gain may accrue to the person himself or to someone’s. So generally there are two factors of frauds: Complexity of bank transactions and failure in observance or procedures and norms laid down in branch operations. The rising trend makes it more and more important that ways and means are found to combat the menace. bills or statements of accounts. Situational pressures and permissive attitudes of the society promote them. High gains and low stakes encourage the incidence. Other contributory factors are incompetence. 14 .victim of the temptations. securities etc. The frauds may be intentional or incidental and can be committed by (I) the bank employees themselves. negligence. drafts. and (iii) the customers or outsiders.). undue favors and irregularities. Fraud causes loss to the victim. embezzlements. In earthly terms bank frauds include all sorts of misappropriations. (ii) the staff members of the banks in collusion or connivance with the customers or outsiders. Fraud is any dishonest act and behavior by which one person gains or intends to gain an advantage over other person. Bank frauds can be explained through following diagram: Bank fraud means obtaining money or property held by bank or customer of the bank in order to make more money. lethargy. directly or indirectly. thefts.

Hence what this paper fundamentally tries to focus on is on the banker’s responsibility vis-à-vis the reach of deception therein. Fraud has not been defined in the indian penal code directly. It is increasing with the passage of time. The number of bank frauds in india is substantial. forgery. Bank frauds are due to the bunko and the bungler bankers. Therefore there is always a swindler behind each bank fraud. concealment. situational pressures and permissive attitudes.The word “fraud” has been defined in the Indian contract act. Dishonesty is never accidental. misappropriation and breach of trust cover the same adequately. counterfeiting. consequences of such incident and tries to look into the entire possible panacea to such a menace in the society. However sections dealing with cheating. In short fraud is dishonesty leading to loss to someone. CHAPTER NO-2 LITERATURE REVIEW 15 .

in reducing the level of resources available for use in the operations of the banks. ample evidence exists that individual integrity of those running the banks today has never been at a higher level. character and methodology employed in fraud. fraud is seen as the act of depriving a person underhandedly of something. for any action to constitute a fraud there must be deceitful objective to benefit (on the part of the perpetrator) at the disadvantage of another person or group. frequently accompanied by cover up of the theft. the customers lose money. In very bad cases where frauds occur with crippling frequency and in wholesomeness. the bank may be forced to close down as a result. In its lexical meaning. Moreover. Thus each case can be said to be a variant of another and undoubtedly an instructive study in human negative use of ingenuity and endowment. Never before have we seen attention to the actual steps. Employees’ as well as firms in all industries engage in fraudulent practices all over the world. It also involves the translation of the stolen resources or property into own resources or property. the control of identified specie seems to give birth to another that is invariably more sophisticated and complex. Another reason for worrying in the banking industry is the vast variety of nature. (2002) says that. The loss results in some cases.In legal terms. There is a common agreement amongst criminologists that fraud is caused by three Elements: Elements of Fraud 16 . which such a person would or might be entitled to. Therefore. Although the existence of fraud in our banks is not an uncommon or unexpected behavior. its prevalence is what is worrying because of all the various problems confronting the most untraceable and Kindle. This leads to loss of confidence and eventually reduced patronage. Fraud typically requires stealing and manipulation of accounts. fraud is an act of trickery which is intentionally practiced in order to gain illegitimate advantage. Young. When the bank loses money and is wound up. but for the perpetration of fraud. Frauds in banks lead to loss of monies that ordinarily belong to someone other than the banks. procedures and control of monetary transactions.

. A fraud will only come about if the perpetrators have the will to commit the fraud. Fraud is a global occurrence. earn the goodwill of clients and thus improve their competitive advantage. As logically anticipated. fraud is perpetrated in several forms and guises.W i O E l p x l p i o r t u n i t y t called “WOE” . an Opportunity and Exit (escape route). CHAPTER NO-3 17 . it is not peculiar to the banking industry. and usually have insiders (staff) and outsiders conniving together to effectively execute the act. With the collapse of foremost international corporations together with high level allegations and real cases of business fraud. The whole essence of these is to guarantee that all organizational members irrespective of position or rank. For any fraud to take place there must be a Will. complies with the least standard of ethical responsibility in order to encourage the reputation of such firms in their selected industry. a lot of organizations in their effort to advance their image have resorted to developing ethical guiding principles and codes of moral values. if the occasion to commit the fraud is presented and if there is a way out or escape means from appropriate sanctions or institutions that are against fraud or related abnormal behavior .

CATEGORIES OF BANKING FRAUDS Categories of frauds classified by Ghosh Committee: C a te g o r ie s o f B a n k in g F ra u d s F ra u d s D one by F ra u d s D one by O u ts id e rs 18 .

Frauds done by Insiders RF r DoWT h e FUa o d n r g mgie r f t eiu n dl s o r aeo nf fuue r nr a u dfi d r edet du l e dae nr nTdL r o te aut i ft t dapa noo c u fddy r i a ms i t e n t un d ss g R o F g r a u d e u T l re a n d t i n L o g a n s W i r e f r aD u e d m a n d d r a f t f r a u d T h e f t o f i d e F n o t ir t g y e d o r f r a u d u l e n t d o c u m e n t s U n in s u r e d d e p o s it s 19 .

1. when one investment goes bad. 2. this trader secretly makes progressively more aggressive and risky investments using the bank's money. Fraudulent loans: 20 . the costs to the bank can reach into the hundreds of millions of rupees. the rogue trader engages in further market speculation in the hope of a quick profit which would hide or cover the loss. there have even been cases in which a bank goes out of business due to market investment losses. when one investment loss is piled onto another. Unfortunately. Rogue Trading: A rogue trader is a highly placed insider nominally authorized to invest sizeable funds on behalf of the bank.

a practice bankers would be more than willing to encourage if they know that the money will be repaid in full with interest. A fraudulent loan. 3. is one in which the borrower is a business entity controlled by a dishonest bank officer or an accomplice. however.One way to remove money from a bank is to take out a loan. The borrower may even be a non-existent entity and the loan merely an artifice to conceal a theft of a large sum of money from the bank. Wire fraud: 21 . the "borrower" then declares bankruptcy or vanishes and the money is gone.

Wire fraud is defined as attempting to defraud using electronic means. rapid or overnight wire transfer of large amounts of money are commonplace.Wire transfer networks such as the international. While security measures have certainly increased over the years. Other common ways this can occur is via the internet. and hacked internet banking accounts Wire Fraud on the Internet 22 . it may take them awhile to notice when a large sum of money goes missing. Since banks are constantly wiring extremely large sums of money back and forth between accounts. What must be proved is that the person knowingly and willfully devised or intended to devise a scheme to defraud. often an offshore account in some distant foreign country. there is the risk that insiders may attempt to use fraudulent or forged documents which claim to request a bank depositor's money be wired to another bank. This type of fraud is usually perpetrated by insiders who forge documents wire money to foreign accounts. Here we’re going to take a look at some of the more common forms of wire fraud. interbank fund transfer system are tempting as targets as a transfer. such as a computer or telephone. costing them millions of dollars or more every year. is difficult or impossible to reverse. stolen credit card numbers. there are literally thousands of crimes that fall under the definition of wire fraud. Since the advent of the internet. and how you can protect yourself. once made. while banks have put checks and balances in place. banks still fall victim to wire fraud. why they occur. As these networks are used by banks to settle accounts with each other. through fraudulent activity such as stolen identities.

or accessing a personal hard drive illegally to steal personal information. A few common ones are:  Email Phishing: The practice of sending out fake emails that look legitimate. revenue.There are many other forms of wire fraud that may occur on the internet. a con artist can inflate perceived 23 . similar to a loan or insurance application. in order to steal information such as passwords. credit card numbers.  Fraudulent Business Sales: This is a common scam targeting webmasters and potential investors. Other methods may include hacking databases containing business information.  Identity Theft: Usually perpetrated by people who set up legitimate looking websites designed to trick users into submitting personal information.. By faking revenue and traffic proof. traffic. and the future potential value of the website are used to estimate the value. or personal information. When valuing an internet business.

Be careful what kind of websites you use to conduct financial transactions. or even loan applications are extremely secure. Then it will be cashed at the payable branch. punching of a demand draft. loan officers. don’t give out your personal information to strangers. sometimes scamming victims out of thousands of dollars. and other business professionals in order to collect personal information such as credit card numbers or social security numbers.value of the website. and try to talk you out of personal information. By using a little bit of common sense. Common scams involve criminals posing as salesmen. you can avoid becoming a victim yourself. Bottom line. they know the coding. This kind of fraud 24 . Wire Fraud On The Phone Wire fraud commonly occurs over the telephone as well. They remove few DD leaves or DD books from stock and write them like a regular DD. With just a little bit of common sense you can avoid becoming a victim of wire fraud yourself. Be wary of any unknown websites. Demand draft fraud: DD fraud is usually done by one or more dishonest bank employees that is the Bunko Banker. Don’t give out personal information over the telephone to unsolicited callers without doing an extensive check on their background. A con artist will call your house. These Demand drafts will be issued payable at distant town/city without debiting an account. For the paying branch it is just another DD. Measures from protecting the Wire frauds Wire fraud is a very real threat in the world today. 4. Since they are insiders. There are many legitimate websites where doing credit card transactions.

will be discovered only when the head office does the branch-wise reconciliation. By that time the money is unrecoverable. Theft of identity: Dishonest bank personnel have been known to disclose depositors' personal information for use in theft of identity frauds. which normally will take 6 months. 25 . The perpetrators then use the information to obtain identity cards and credit cards using the victim's name and personal information. 5.

Impact of Identity Fraud
The growth in identity fraud victimization rates over the past year is harmful not only
because of the dollar losses caused from identity fraud, but also because of the emotional
impact on the victims. Identity Fraud victimization and the accompanying fear it generates
lowers faith in the safety of the system and causes secondary effects, which are demonstrated
by changes of behavior, such as avoidance of certain merchants, altered usage of payment
types and channels, and severed relationships with primary card companies and banks. The
increased fraud incidence is being driven by the poor economy coupled with an increasingly
global, hierarchal and sophisticated criminal enterprise that specializes in developing new
weapons of attack. Meanwhile the consumer costs, the dollar amounts the victim pays on
average out-of-pocket, reached an all time low.

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The relation of identity fraud is explained through following the following
diagram:

6. Forged or fraudulent documents:

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Forged documents are often used to conceal other thefts; banks tend to count their money
meticulously so every penny must be accounted for. A document claiming that a sum of
money has been borrowed as a loan, withdrawn by an individual depositor or transferred or
invested can therefore be valuable to a thief who wishes to conceal the minor detail that the
bank's money has in fact been stolen and is now gone.

7. Uninsured deposits:

There are a number of cases each year where the bank itself turns out to be uninsured or not
licensed to operate at all. The objective is usually to solicit for deposits to this uninsured
"bank", although some may also sell stock representing ownership of the "bank". Sometimes
the names appear very official or very similar to those of legitimate banks. For instance, some
banks with no license and no affiliation to its seemingly apparent namesake; the real Chase
Manhattan bank, New York. There is a very high risk of fraud when dealing with unknown or

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The structure of uninsured deposits is given as follows: 29 .uninsured institutions.

B il Bo SD ti so c o Cs t re er d luAC e n hc nt ei n g iSC t th o e l DCFoq uurhu ane pu t ld i c a t i o n ICnq m u a epr dse r s o n a FOei n rqrga u d u l PtFK i ohr atni su hA i nn d PeFMF nar oaty u m Sugn gkeA i mn d m i n g Tden he t ey f t O f F o r g e d LoOsd of a C n a r d II nd te e n r tn i te y t CAL a p ru d l si c a rIF n r fa o u r d m a t i o n tgn i od n e r in g e d B il D is c o u n tin g F ra u d B o s te r C h e q u e s S t o le n C h e q u e s C re d it C a rd F ra u d A c o u n tin g F ra u d C h e q u e K itin g S to le n P a y m e n t C a rd s D u p lic a tio n O r S k im m in g O f C a rd In fo rm a tio n Im p e rs o n a tio n A n d T h e ft O f Id e n tity F ra u d u le n t L o a n A p lic a tio n P h is h in g A n d In te rn e t F ra u d M o n e y L a u n d e r in g 30 .

AF AC co dMu LcC eo uvCo nn nUtu t n e Vota e o r ledn e yo rutm c fnaT e r i DfoO f hptc e raic v i i n Crpu e r Snes f e eane ldi MtcF u gerB r inae t ng rFe i r t i soF ri r ire p s raor o u auF ul Fadn r wda t i i rau no ng aud ud d Frauds done by Outsiders F u A n d d Av D a c cn i v o c e ue r n s F t i e o O e n p F e r a n u i n d g F r M CL o e o n t u e t en y rt eT o r r af f e n C i s tr fe Se d er i tc F u r F a rr ia u t CC ol e m a r p i nu gt e F r r F a r u a d u d UV o n u o c f h c e i r a Ml B a o n r i r p o u w l a i n t i g o iad e u s d u d n 31 .

profitable customer. and the unwitting bank. a fraudster uses a company at their disposal to gain confidence with a bank. These payments are always made. After certain time. leaving noone to pay the bills issued by the bank. business continues as normal for the fraudulent company. as the customers in question are part of the fraud. the company requests that the bank settles its balance with the company before billing the customer. actively paying any and all bills raised by the bank. after the bank is happy with the company. the company takes the payment from the bank. Bill discounting fraud: Essentially a confidence trick. its fraudulent customers. and the company and its customers disappear. by appearing as a genuine. Again.1. Only when the outstanding balance between the bank and the company is sufficiently large. 32 . To give the illusion ofs being a desired customer. the company regularly and repeatedly uses the bank to get payment from one or more of its customers.

33 . some fraudsters will attempt to forge a depositor's signature on a blank cheque or even print their own cheques drawn on accounts owned by others. Instead of tampering with a real cheque. The cheque will then be deposited to another bank and the money withdrawn before the cheque can be returned as invalid or for non-sufficient funds.000. non-existent accounts or even alleged accounts owned by non-existent depositors.00.2. Forgery and altered cheques: Thieves have altered cheques to change the name (in order to deposit cheques intended for payment to someone else) or the amount on the face of a cheque (a few strokes of a pen can change 100.00 into 100. although such a large figure may raise some eyebrows).

A few 34 . The amount of the cheque is credited to the card account by the bank as soon as the payment is made.3. but by then it is already too late. Booster cheques: A booster cheque is a fraudulent or bad cheque used to make a payment to a credit card account in order to "bust out" or raise the amount of available credit on otherwise-legitimate credit cards. even though the cheque has not yet cleared. the perpetrator goes on a spending spree or obtains cash advances until the newly-"raised" available limit on the card is reached. 4. The original cheque then bounces. such as a mailroom or post office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a social or veterans' benefit office (issuing many cheques). Stolen cheques: Some fraudsters obtain access to facilities handling large amounts of cheques. Before the bad cheque is discovered.

A credit card is made of three plastic sheet of polyvinyl chloride.cheques go missing. 35 . „« Genuine cards are altered. The central sheet of the card is known as the core stock. Credit card fraud: Credit card fraud is widespread as a means of stealing from banks. 5. accounts are then opened under assumed names and the cheques (often tampered or altered in some way) deposited so that the money can then be withdrawn by thieves. „« Fraudulent telemarketing is done with credit cards. Stolen blank cheque books are also of value to forgers who then sign as if they were the depositor. These cards are of a particular size and many data are embossed over it. M-Commerce and Internet facilities being available on massive scale the fraudulent fund freaking via credit cards will increase tremendously. „« Genuine cards are obtained on fraudulent applications in the names/addresses of other persons and used. „« Counterfeit cards are created. But credit cards fraud manifest in a number of ways. They are: „« Genuine cards are manipulated. merchants and clients. It is feared that with the expansion of E-Commerce.

Stolen payment cards: Often. like a kite in the wind. Cheque kiting: Cheque kiting exploits a system in which. In many cases. before the bank receives any money by clearing the cheque. the simplest form of this theft involves stealing the card itself and charging a number of high-ticket items to it in the first few minutes or hours before it is reported as stolen. 8. the first indication that a victim's wallet has been stolen is a 'phone call from a credit card issuer asking if the person has gone on a spending spree. using each to cover the shortfall for a previous cheque. A cheque is cashed and. the money is made available immediately even though it is not removed from the account on which the cheque is drawn until the cheque actually clears. inflate the worth of the company's assets or state a profit when the company is operating at a loss. What they were actually doing was check kiting. These tampered records are then used to seek investment in the company's bond or security issues or to make fraudulent loan applications in a final attempt to obtain more money to delay the inevitable collapse of an unprofitable or mismanaged firm. Some perpetrators have swapped checks between various banks on a daily basis. 7. it flies briefly but eventually has to come back down to the ground. the original deposited cheque turns out to be a forged cheque. 36 . Deposit 1000 in one bank. write a cheque on that amount and deposit it to your account in another bank. the money is deposited into some other account or withdrawn by writing more cheques. A variant of this is to copy just the credit card numbers (instead of drawing attention by stealing the card itself) in order to use the numbers in online frauds. some businesses have been known to use fraudulent bookkeeping to overstate sales and income. In-transit or non-existent cash is briefly recorded in multiple accounts. Accounting fraud: In order to hide serious financial problems. you now have 2000 until the cheque clears.6. when a cheque is deposited to a bank account.

The resulting debt 37 .9. sales or income to appear solvent even after becoming seriously financially overextended. date and place of birth are sufficient to obtain a birth certificate. Some thieves have surreptitiously added equipment to publicly accessible automatic teller machines. accounts and credit in that person's name. a fraudulent card stripe reader would capture the contents of the magnetic stripe while a hidden camera would sneak a peek at the user's PIN. parents' name. using borrowed money to finance costly mergers and acquisitions and overstating assets. then using the information to apply for identity cards. each document obtained then is used as identification in order to obtain more identity documents. Unfortunately for the banks. Government-issued standard identification numbers such as "Social security numbers. identity thieves have been known to take out loans and disappear with the cash. Often little more than name. quite content to see the wrong persons blamed when the debts go bad. 10. PAN numbers" are also valuable to the identity thief. ranging from a dishonest merchant copying clients' credit card numbers for later misuse (or a thief using carbon copies from old mechanical card imprint machines to steal the info) to the use of tampered credit or debit card readers to copy the magnetic stripe from a payment card while a hidden camera captures the numbers on the face of the card. The fraudulent equipment would then be removed and the data used to produce duplicate cards that could then be used to make ATM withdrawals from the victims' accounts. Fraudulent loan applications: These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order to make a risky loan appear to be a sound investment for the bank. the scam operates by obtaining information about a victim. Impersonation and theft of identity: Theft of identity has become an increasing problem. 11. Duplication or skimming of card information: This takes a number of forms. Some corporations have engaged in over-expansion.

12. auction or payment site. capturing keystrokes or confidential data in order to send it to outside sites. such as theft of identity or online auction fraud. A number of malicious "Trojan horse" programmers have also been used to snoop on Internet users while online. Phishing and Internet fraud: Phishing operates by sending forged e-mail. such as Italian dairy conglomerate Parma at. leaving banks exposed to massive losses from bad loans. 38 .load has ruined entire large companies. The information thus stolen is then used in other frauds. impersonating an online bank. the e-mail directs the user to a forged web site which is designed to look like the login to the legitimate site but which claims that the user must update personal info.

A currency note is made out of a special paper with a coating of plastic laminated on both sides of each note to protect the ink and the anti forgery device from damage. The securities.If forgery of currency notes could be done successfully then it could on one hand made the forger millionaire and the other hand destroy the economy of the nation. 14. water marks. though in business. But these things are not known to the majority of the population. The operations work in various forms. More over these notes have security threads. would still be worth their full amount. The borrower would then default on the loan. Forged currency notes Paper currency is the usual mode of exchange of money at the personal level. cheques and drafts are also used considerably. however. The transaction served only to disguise the original source of the funds. Bank note has been defined in Section 489A.13. Forged currency notes are in full circulation and its very difficult to catch 39 . One variant involved buying securities (stocks and bonds) for cash. the securities were then placed for safe deposit in one bank and a claim on those assets used as collateral for a loan at another bank. Money laundering: The term "money laundering" dates back to the days of Al Capone Money laundering has since been used to describe any scheme by which the true origin of funds is hidden or concealed.

Fund Diversion In this case. Computerization of banks had started since 1994 in India and till 2000 4000 banks were completely and 9000 branches have been partially computerized. Advance Fee Fraud This may involve an agent approaching a bank. 15. Another case of this is the tapping of funds from interest in suspense accounts in banks. About 1000 branches had the facilities for International bank Transaction. This purported source of funds is not specifically identified as the only way to have access to it through the agent who must receive a commission “in advance”. The main banking tasks which computers perform are maintaining debit-credit records of accounts. these victims are not likely to report the losses to the police or to the authorities. When the deal fails and the fees paid in advance are lost. print out statements of accounts create periodic balance sheets etc. and carry out electronic fund transfer. a company or individual with another to access large funds at below market interest rates often for long term. operating automated teller machines. But the latest fraud which is considered as the safest method of crime without making physical injury is the Computer Frauds in Banks. As soon as the agent collects the especially distressed banks and banks needing large funds to bid for foreign exchange can easily fall victim of this type of fraud. 40 .hold of such forgers as once such notes are circulated its very difficult to track its origin. Internet facilities of computer have revolutionized international banking for fund transfer and for exchanging data of interest relating to banking and to carry out other banking functions and provides certain security to the customers by assigning different pin numbers and passwords. Reserve Bank Of India has evolved working pattern for Local area Network and wide area Network by instituting different microwave stations so that money transactions could be carried out quickly and safely. 16. bank staff sometimes diverts customers’ deposits and loan repayment for personal use.

Account Opening Fraud This involves the deposit and subsequent cashing of fraudulent cheques. A common fraud is to present the counterfeit stocks or bonds as collateral for loan. Fraudulent money transfer may result from a request created solely for the purpose of committing a fraud or altered by changing the beneficiary’s name or account number or changing the amount of the transfer. The presenter would draw out the proceeds and disappear before the financial instruments are found to be counterfeit. It usually starts when a person not known to the bank asks to open a transaction account such as current and savings account with false identification but unknown to the bank. pay or terms of payment. 19. The documents may be total counterfeit or may be genuine documents that are copied. They stimulate trade across national borders providing a vehicle for ensuring prompt payment by financially sound institutions. over-the-counter. Counterfeit Securities Counterfeiting of commercial financial instruments is one of the oldest forms of crime. 18. 41 . telephone. Modern photographic and printing equipment has greatly aided criminals in reproducing good quality forged instruments. Letter of Credit Fraud This generally arises out of international trade and commerce. electronic process and telex. which are usually accompanied by spurious bank drafts with fake endorsements which guarantee payments. Overseas suppliers continue to receive spurious letters of credit. Some common means of money transfer are mail. forged or altered as to amount.17. Money Transfer Fraud Money transfer services are means of moving to or from a bank to beneficiary account at any bank point worldwide in accordance with the instructions from the banks’ customers. 20. payout date.

These borrowings are more rampant on weekends and during the end of the month when salaries have not been paid. Askew. 22. Unofficial Borrowing This occurs when bank employees borrow from the vaults and teller tills off the record. Computer frauds could also occur due to improper input system. and a considerable percentage of the enormous amount of money spent annually in the banking sector to help reduce fraud usually are channeled towards fighting computer frauds and cyber crimes and theft. the input processing stage or even the data dissemination stage. Computer Fraud Computer Frauds involves the deceptive manipulation of the banks’ computer. No bank seems to be invulnerable to it. Some of the unauthorized borrowings from the vault. virus. a local clearing item can be routed to an up country branch. either at the data collection stage. It can also take the form of corruption of the programmed or application packages and even breaking into the system through remote sensors. computer frauds arising from cyber thefts and crimes has assumed a very threatening dimension . A banks’ data can also be tampered with at the data centre to gain access to unauthorized areas or even give credit to accounts for which the funds were not originally intended. In this epoch of enormous deployment of automated teller machines (ATMs) and online real time e-banking and commerce. Such unauthorized borrowings are done in exchange of the staff post-dated cheque or nothing. are used for fast businesses lasting a few hours or days after which the resources are replaced without any substantiation in place that they were 42 .21. transaction manipulations and cyber thefts. the collecting bank will give value as though the paying bank had confirmed the instrument good for payment. the delay entailed will give the collecting bank the impression that the paying bank had paid the instrument. program manipulations. Clearing Fraud Most clearing frauds hinge on suppression of an instrument so that at the expiration of the clearing period application to the instrument. which could run into thousands of cedes. Misrouting of clearing cheques can also assist fraudsters to complete a clearing fraud. This kind of fraud can remain undetected for a long time. Clearing cheques can also be substituted to enable the fraudster divert the fund to a wrong beneficiary. 23.

24. Such a practice when done recurrently and with no official records. whereby they resort to other means of balancing the cash in the bank’s vault without ever having to replace the sums of money collected. This account would obviously be a fabricated account into which the funds of unsuspecting clients of the banks are transferred. The amounts taken are usually in small amounts so that it will not easily be noticed by top management or other unsuspicious staff of the bank. Voucher Manipulation Manipulation of Vouchers involves the replacement or alteration of entries of one account to another account being used to commit the fraud. 43 . Manipulation of vouchers can thrive in a banking system saddled with inadequate checks and balances such as poor job segregation and lack of detailed daily examination of vouchers and all bank records.taken in the first place. soon very easily becomes prone to manipulations.

CHAPTER NO-4 TYPES OF BANKING FRAUDS Types of Banking Frauds 44 .

Type of Banking
Frauds

Fictitious entries made in book/ manipulation of record

Purchased Bill Frauds

Credit / Debit Card Frauds

ATM
Frauds

Hypothecation
Frauds

Cheque
Frauds

Identity Frauds

Deposit Account Frauds

Loan
Frauds

As a customer you may be seen as a potential target for fraudulent activities. However by
arming yourself with information and tools you can protect yourself from becoming a victim
of fraud. Do you know the four biggest fraud threats you face Credit card and debit card
fraud is a crime whereby your credit or debit card can be reproduced in order to use the credit
balance to obtain a financial advantage. The creation and/or alteration of a credit/debit card
occurs when the information contained on the magnetic strip is reproduced. This type of
45

crime is known as ‘skimming’. Credit or debit card fraud can also occur when your card is
lost or stolen and used by a third party to purchase goods with those cards or to remove cash
from the cards. Credit or debit cards can also be intercepted in transit while being sent to
you. Your cards can also be compromised by a dishonest merchant who undertakes
unauthorized duplicate transactions on your card.

Protect your credit / debit card:

Memories your personal identification number (PIN). Don't use the same PIN for all your
cards, and don't choose your birth date or other easily identifiable numbers that might be on
something else in your wallet. Check statements and call your credit card issuer immediately
if you see anything suspicious on your bill. You could help the company uncover fraud—and
save yourself from paying unauthorized charges. Do not let your credit card out of your sight
at anytime for example, at a restaurant go with the card. Card fraud is not applicable in
Australia only be just as vigilant when travelling overseas, credit card skimming is an
international crime. Always sign your card in ink as soon as you receive it. Keep track of
when new and reissued cards should arrive, and call the credit card issuer if they don't come
on time.

2. Cheque Fraud:

Cheque fraud is the use of a cheque to get financial advantage by:

altering the cheque (payee/amount) without authority theft of legitimate cheques and then
altering them duplication or counterfeiting of cheques using false invoices to get legitimate
cheques depositing a cheque into a third party account without authority depositing a cheque
for payment knowing that insufficient funds are in the account to cover the deposited cheque.

How to protect yourself from cheque fraud:

1. Reconcile your accounts promptly and regularly.
2. Never sign blank cheques, and only sign cheques after all details have been completed.
3. Limit the number of signatures to your account to ensure control.
46

4. Ensure that your signature is not with documents that can be accessed by the general
public.
5. Keep all cheques secure when not in use to deter theft.
6. Don’t leave any gaps in the completion of the payee name, amount in words and in figures.
7. If cheques are lost or stolen contact ANZ immediately and ask them to stop payment on
the cheque.

3. ATM FRAUD

Has your ATM got the ‘Jitters’? More and ATMs now have in-built skimming prevention
software. You may have noticed that your card enters and exits the card reader slowly, or
jumps like it has the 'jitters'. That's a sign that the ATM is helping to protect you against card
skimming.

Card skimming:

Card skimming is the illegal copying of a card's magnetic strip that can later be used to
access

your

account

and

make

unauthorized

purchases

using

those

details.

In the case of ATMs, this typically occurs when the would-be thief places a device over the
card entry point that scans the cards as they enter and exit the ATM, combined with a hidden

47

This device is installed to alter the shape of the card reader and making it difficult for the would-be thief to install a skimming device on the ATM.  Never rely on a number provided in an email or click on the provided link—instead find the contact number through an internet search or check the back of your ATM card. Along with the skimming prevention software. more ANZ ATMs have been fitted with skimming prevention software that 'shakes' the card as it enters and exits the ATM. 4.staining technology to deter theft. You will notice on our newer ATMs there is either a green or blue plastic cover where you insert your card. What we are doing To help prevent card skimming. 48 . The shaking interrupts the scanning process and renders any skimming attempt ineffective All ANZ ATMs across Australia have skimming prevention software. take out loans and conduct illegal business under your name. ANZ ATMs include the use of ink.  If you receive a call from your bank or any other organization. Check with the organization in question before calling back.  Regularly check your credit card and/or bank statements to ensure that suspicious transactions are detected. The scanning device and camera can be cleverly disguised so that you don't even notice the ATM has been modified. don’t provide your personal details—instead ask for their name and a contact number. How to protect yourself from identity theft:  Never send money or give personal details to people you don’t know and trust. ANZ are constantly looking at new technology for ensuring that customer information and cash are secure at all times. Identity Fraud Identity fraud can occur in many ways—from somebody using your credit card details illegally to make purchases to having your entire identity assumed by another person to open bank accounts.camera to record you while you enter your PIN.

of which you have no knowledge. such as credit card applications and bank statements. Any instance of identity fraud should also be immediately reported to your local police.  Ensure you choose passwords that are not easy for someone to guess. It is also a good idea to advise close family and friends as identity theft rings will often target more than one member of a household. pet’s name etc.  You receive phone calls or letters advising that you have been denied credit that you have not applied for.  Lock your letterbox securely to avoid your mail being stolen. but some typical signs that your identity is being used unlawfully are:  A financial institution informs you they have received an application for credit that you have not applied for. consider contacting Veda 49 . Shred all documents containing personal information.  Log directly onto websites you are interested in rather than clicking on links provided in an email.  You receive bank. Signs of identity fraud These can vary. What can you? You should also advise any other financial institution that you bank with so they are aware of the situation.  You notice that you no longer receive your bank or credit card statement or you notice that not all your mail is being delivered. mobile phone or credit card statements or notices in your name.  Always get independent advice if you are unsure whether an offer or request is genuine. In addition. such as your date of birth.

Genuine bills and railway are presented and got discounted from the bank but the material is got released from the railways on indemnity bond. 3. Once the account is opened. Bogus bills for worthless goods are discounted on the strength of dispatch papers . They can take the following forms: 1. 3. 5. the miscreant deposits. Fake bills with inflated value. Bogus or stolen railway receipts and motor transport receipts accompanied by counterfeit bills are discounted. 2. The banker becomes joint account holder and withdraws the money. a credit agency.Advantage. 50 . stolen/materially altered cheques for collection/payment etchant dormant account is fraudulently operated by a forger on forged signatures. Specimen signature card or signatures on letters are utilized as models: 1. Purchased Bill Frauds: the frauds in this area are often costly. Mini deposit collections are not deposited by the collecting banker. 2. Joint accounts are operated by one of the signatories (forger) by forging the signatures of others. 6. for discounts. frauds under this head are generally attempted t the time of opening of new branch when such emphasis is not paid on abstention of introduction. 4. 4. to obtain your credit history report so that you are kept fully informed of any unauthorized activity on your own file. The banker manipulates the depositor’ Pass Book. drawn on sister concerns. Deposit Account Frauds: A Accounts opened without introduction or with improper introduction.

against pledged goods. Loan Fraud: The general policy of the government is to encourage loans to agriculturists or to small artisans and businessmen. The following types of fraud were perpetrated. Advance against pledge/hypothecation of securities. 3. overvaluation of stocks. Loans are taken by different persons on the same time. 9. Farm machinery purchased with loans and hypothecated to banks is sold without informing the banks or returning the loans. 2. 2. Fictitious entries made in book/ manipulation of record: 51 . pledging inferior quality of goods. Loans taken for agricultural development were later used as marriage celebrations. In the initial stages. 1. False firms appear everywhere and obtain loans. Hypothecation Frauds: Cash advances. Nomadic artisans obtain loans and vanish from the scene. 5. as security are fertile fields for frauds. In fact. it resulted in losses to the banks due to lack of expertise in the field.7. 4. are removed unauthorized from the god owns. 8. 6. Stocks or part thereof. 1. In connivance with the suppliers. farm machinery bills were inflated for accessories which wee never supplied and included in the bills. certain targets for these purposes are fixed for the banks.

Frauds in Investment Portfolios: Investment portfolio which constitutes a big chunk of the total assets of a bank is another fraud prone area. subsequently the record is destroyed. Cash shortages: I. direction and adequate system of checks and balances may misuse the position for his personal gains to 52 . 3. Later when the bills/cheques are received unpaid. the banks find it difficult to recover the amount. In such cases. 2. The dealer in securities in the absence of proper policy. Advance under some priority sector schemes. I. Miss-use of discretionary powers or exceeding discretionary powers by Managers/Officers. Cash the most sensitive asset of the bank is prone to fraud. Lack of post disbursement supervision. Advance against clean/documentary bills purchased/discounted. Incomplete credit information. II. The shortages of fraud there is generally due to carelessness/negligence of the concerned staff who are the joint custodians of cash.These frauds normally take place with the active involvement of staff or where the books are exposed to the members of public. 5. The borrower committed frauds by tendering fake bills/accommodation bills/cheques for discounting. Frauds in Borrower Accounts: 1. 6. Advance granted in haste or at the behest of top management or any pressure or some consideration. 4.

interest rate applied etc. Data entry errors are created by staff to give undue gain to interested accounts. outstanding dues. export-import transactions. 5. Some of the dealers have been put through fictitious deals with the help of brokers due to lack of back-up functions. Debiting bank accounts without remitting cash. Fraudulently debiting/crediting Head office account. Debiting/Crediting various deposit accounts without authority. Frauds in Foreign Exchange Areas: 1. Frauds in inter branch and inter bank accounts: 1. 53 .the detriment of Banka€™s interest by putting through deals for passing on business to the brokers which are otherwise not warranted by business considerations. Adjusting branch books-clean cash. Frauds in this area are perpetrated in the dealing room operations. IV. Errors are made to give a wrong picture of sanative data such as balances. classification of advances. 2. 3. documentary credits. III. Frauds in computerized environment: Hardware errors disable the working of any of the component of hardware with a view to creating/temporary/permanent malfunction to either destroy the data or present its disclosure for security. packing credit etc. Pregame errors are created by miscreants to cripple the system or to siphoned off the funds to unauthorized accounts or to prevent/reduce charges to select accounts. 2. 4. VI. Debiting branch adjusting account without remitting cash.

however other motive are a follow: • Personal vendetta 54 . etc. Bank computer crimes are committed mainly for money.CHAPTER NO-5 COMPUTER DEPREDATIONS Computer depredations have by some been classified as Computer frauds are those involve embezzlement or defalcations achieved by tampering with computer data record or programmed. The difference is however academic only. Computer crimes are those committed with a computer that is where a computer acts as a medium.

Computer crimes are different from the usual crimes mainly because of the mode of investigation. More over the evidence connecting the criminal with the crime is often not available. It is difficult to investigate for the following reasons: 55 . tampered or secreted.• Black mail • Ego • Mental aberrations • Mischief Bank computer crimes have a typical feature. There are no eyewitness. the evidence relating to crime is intangible. no usual evidentiary clues and no documentary evidences. More over it is not easily detectable. The evidences can be easily erased.

The normal investigator does not have the proper background and knowledge .special investigators have to be created to carry out the investigations. Hi-tech crime: The information technology is changing very fast. C. International crime: A computer crime may be committed in one country and the result can be in another country. even in latest scenario there has been cells operating in the Maharashtra police department to counter cyber crimes. the different treaties and conventions have created obstructions in relation to tracking of cyber criminals hiding or operation in other nations 56 .I also have been asked to create special team for fighting cyber crimes.B. the FBI of USA have a cell.F c e s C m e a e s r l i H i T e c h N C ro i m S c e e n e C r i m e 1. there has been lot of jurisdictional problem an though the Interpol does help but it too has certain limitations. 2.

the only evidence a criminal leaves behind is the loss to the crime. Bankers Book Evidence Act etc. experience of India in relation to information and technology is limited and is in a very immature state. The Reserve Bank of India has come up with different proposals to make the way easier. no written documents. The Indian Penal code.3. No-scene crime: The computer satellite computer link can be placed or located anywhere. have amended. and criminal procedure code has no clue about computers when they were codified. It is very much imperative that the state should seek the help of the experienced and developed nations. they have enacted electronic fund transfer act and regulations.. The terminal may be anywhere and the criminal need not indicate the place. 4. It is highly required to frame and enact laws which would deal with those subjects which are new to the country specially cyber law. The entry is gained through a spam or bulk mail. Faceless crime: The major advantage criminal has in instituting a computer crime is that there is no personal exposure. Intellectual property right etc. CHAPTER NO-6 EFFECTS OF BANK FRAUDS ON BANKS 57 . no fingerprints or voice recognition. The criminal is truly and in strict sense faceless. The existing enacted laws of India are not at all adequate to counter cyber crimes. The Reserve Bank of India Act. evidence act. There are certain spy software’s which is utilized to find out passwords and other vital entry information to a computer system. no signatures. The usual crime scene is the cyber space.

EFFECTS OF FRAUDS ON BANKS 1. Loss of Public Confidence in Banks 58 .

Low Asset Quality It also leads to a diminishing effect on the asset quality of banks. 3. 2. Moreover. Increased Operating Cost Fraud can increase the operating cost of a bank because of the added cost of installing the necessary machinery for its prevention. this unproductive diversion of resources always reduces outputs and low profits which in turn could retard the growth of the bank. In extreme cases rampant and large incidents of fraud could lead to a bank’s failure. Overall. A good number of banks’ frauds never get reported to the appropriate authorities. which belong to either the bank or customers. which would have been available for distribution to shareholders. the first generation of liquidated banks (Co-operative Bank and Bank for Housing and Construction) by the Bank of Ghana was largely a consequence of frauds perpetrated through insider loan abuses. Losses from fraud which are absorbed to equity capital of the bank impairs the bank’s financial health and constraints its ability to extend loans and advances for profitable operations. devoting valuable time to safeguarding its asset from fraudulent men distracts management. 4. Indeed. If this problem is not adequately handled.Fraud is perhaps the most fatal of all the risks confronting banks. The problem is more dangerous when compounded by insider loan abuses. rather they are suppressed partly because of the personalities involved or because of concern over the negative image effect that disclosure may cause if information is leaked to the banking public The banks’ customers may lose confidence in the bank and this could cause a setback in the growth of the bank in particular. it could lead to distress and bank failure. volume and actual loss. Loss of Money Fraud leads to loss of money. detection and protection of assets. 59 . Such losses may be absorbed by the profits for the affected trading period and this consequently reduces the amount of profit. The enormity of bank frauds in Ghana can be inferred from its value.

7. so there is decrease in the profit margin of the company. If there is no frauds in banks so bank is able to give maximum return on the investment of the customers. Because of the frauds there is decrease in the profit of the banks. Unattended There are instances of fraud that adversely impact banks on a regular basis and go unnoticed or unattended. CHAPTER NO-7 60 . Creditability Fraud events raise questions around the credibility of the fraud deterrent processes and the technological capabilities of the institution. All these cases of fraud result in sizeable monitory losses for the banks once they go undetected.5. which belong to either the bank or customers. Fraud leads to loss of money. Reduced the amount of profit Banking frauds reduce the profit of banks. 6.

the legal consultant told the bank that the Xerox documents were `perfect' and to release loan after execution of sale deed. Prevention is the best alternative. The alleged greediness of employees to give their salary slips and other documents on payment of some money made the job of the cheats easier. It is comparatively easier. the bank passed the same on to the legal section. After scrutiny. the offenders continue to take advantage of the lapses. 61 . The police opine that unless bankers evolve a foolproof system. though even with the best laws. In bank administration. The bank rules state that loan applications can be examined "even with Xerox copies of documents. efficient investigation team the successful conclusion of most cyber crimes will remain a remote possibility .Therefore emphasis is more on prevention. one feels that not much attention is paid to preventive measures. Bank managements must direct their orientation towards preventive rather than detective or punitive measures.BANK RULES REGARDING BANKING FRAUDS AND SCAMS After receiving Xerox papers (which were actually forged by the offenders) of the property. Preventive vigilance must be the prime agenda to bring down the occurrence of fraud in banks. Their investigation is highly intricate and daunting. Though computer based banking crimes are yet limited but it is increasing with a huge pace.

CHAPTER NO-8 ROLE OF BANKERS IN A BANK FRAUD 62 .

Purchased bill frauds. The bank has therefore to sentinel itself and its customer against the deceitful employee. 3· Fraudulent encashment of negotiable instruments by opening an account in fake/fictitious name. misappropriation of customer deposit accounts. clearing forged cheques and other instruments. 2· Withdrawal from deposit accounts through forged documents/instruments. creaming of the sundry accounts. Manipulation of cash by those handling cash. fraudulently while working in clearing departments. misappropriation of money in telegraphic transfers. tinkering with the central accounts. 4· Perpetration of frauds through clearing transactions. Deposit account frauds. like: Cheque frauds. A dishonest banker can play havoc with the banks money. An analysis of frauds reported by banks to RBI broadly indicated that frauds perpetrated on banks could be classified into the following categories:1· Misappropriation of cash tendered by the banks constituents and misappropriations of cash remittance. helping the bank robber. 63 . accepting counterfeit currency for a consideration. by giving information etc. Hypothecation frauds. The following operational avenues have been noticed time and again. Loan frauds etc.Bank frauds crop up in all spheres of banking dealing. The vicinity of business of the banker is extensive.

Banks Guarantees Co-acceptance of bills without proper authority and consideration. Misutilisation/overstepping of lending/discretionary powers. Opening/Issue of Letters of Credit. CHAPTER NO-9 REGULATIONS RESERVE BANK OF INDIA (RBI) 64 . 6. non-observance of prescribed norms/ procedures in credit dispensation etc.5.

 It was observed that the practices vary widely among banks.Reserve Bank of India (RBI) rules to prevent Bank frauds The Reserve Bank of India (RBI) has drawn up new rules for banks aimed at preventing fraud and irregularities which is given as follows:  The regulator has asked banks to immediately frame staff rotation and mandatory leave policies for employees in sensitive areas such as treasury and for relationship managers handling high-value clients.  In another notification. can be addressed uniformly by the banks for timely and appropriate action. It has. with responsibilities similar to those of chief vigilance officers in public sector banks. therefore.  Staff rotations and leave are international practices that help banks keep track of decisions and businesses handled by a particular employee. 65 . RBI directed private and foreign banks to appoint chief of internal vigilance (CIV) officers. malpractices.”  Banks need to implement an internal vigilance system by and submit a compliance report. etc. frauds.  Reserve Bank of India has introduced the rules following forensic studies at certain banks due to the “occurrence of large value frauds or sharp increase in number of frauds at such banks”.. especially relating to corruption. been decided to lay down detailed guidelines for private sector and foreign banks on similar lines so that all issues arising out of lapses in the functioning of the private sector and foreign banks.

Banks asked to frame a “fit and proper” criteria for posting employees in critical positions such as in dealing rooms and treasury. For instance. RBI’s directive on staff rotation and mandatory leave comes a few months after a multi crores fraud involving a relationship manager at the Gorgon branch of Citibank India came to light. CHAPTER NO-10 FACTORS OF FRAUDS 66 . but has fixed the initial tenure at a maximum of six years.  RBI has allowed banks a free hand in appointing CIVs.  To prevent frauds. irrespective of whether or not actual loss takes place. or as relationship managers for high- value customers and heads of specialized branches. banks should have prescribed procedures and criteria to analyze and assess irregularities.” RBI said.  If an irregularity is detected. Banks should be able to understand the nature of an irregularity or fraud. banks should immediately assess if it was a result of human or system failure.  This exercise is the first critical step towards corrective action in the sense that it would lead to expeditious filing of police complaints. RBI said.  It has asked banks to examine the “intent to defraud. whether it has taken place because of negligence in duty as a result of“collusion” by employees. blocking/freezing of accounts  and salvaging funds from the blocked/frozen accounts in due course.  “Any action taken in collusion to derive undue/unjust benefit or advantage should be termed as fraud.

IE XS T ET RU NOT ALN FA AL CF TA OC RT O R N I I INTERNAL FACTORS 67 .

68 .

69 .

Job Rotation Ordinarily. 70 . Overstretching Overstretching is another reflection of poor management. fraud could still occur with sometimes deliberate skipping of these tested policies and procedures. the more proficient he is likely to be. A staff who is overstretched is not likely to perform at optimum level of efficiency. The existence of this kind of situation in a bank is clear evidence of poor management and such situations encourage fraudulent practices. Poor management would also manifest in ineffective policies and procedures. Major institutional cause’s fraud can be categorized as follows: 1. Poor Management This comes in a form of inadequate supervision. Even where there are effective policies and procedures in place. the longer a man stays on a job. 3. Inexperienced personnel are unlikely to notice any fraud attempts and take necessary precautionary measures to checkmate the fraudster or set the detection process in motion. 2. They are to a great extent factors within the control of the management of the bank. This can aid perpetration of fraud to a large extent. which a fraudulent minded operator in the system will capitalize on. 4.The institutional factors or causes are those that can be traced to the in-house environment of an banks. An operator who has spent so long on a particular job may be encouraged to think that no one else can uncover his fraud. Inexperienced Personnel Inexperienced personnel are susceptible to committing unintentional fraud by falling for numerous tricks of fraudsters. A junior staff with fraudulent tendencies that is not adequately supervised would get the impression that the environment is safe for the perpetration of fraud.

71 . 7. Some people have an insatiable appetite to accumulate wealth and would therefore steal irrespective of how good their earnings are. 6. Employees that are poorly paid are often tempted to fraudulently convert some of the employers’ monies to their own use in order to meet their personal and social needs. This explains why fraud would still exist in the banking sector. Frustration Frustration could also lead to fraud. This temptation is even stronger on bank employees who on daily basis have to deal with cash and near cash instruments. Such inefficient performance creates a loophole which can very easily be exploited by fraudsters. Where a staff feels short-changed in terms of promotion and other financial rewards. In our society. Inadequate Training and Re-Training Lack of adequate training and retraining of human resources both on the practical and theoretical aspects of banking activities and operations more often than not leads to poor performance. which is reputed to be one of the highest paying sectors. it is argued that greed rather than poor working conditions or poor salaries is what lures most people into fraudulent acts. Poor Remuneration Poor salaries and poor conditions of service can also cause and encourage fraud.5. they become frustrated and such frustration could lead to fraud as such employee would attempt to compensate himself in his own way.

the following factors greatly contribute to fraud:  Inadequate compensation.  Refusal to comply with laid-down procedures without any penalty or sanction. Weak Accounting The weak accounting is one of the important internal factor which causes to the banking frauds and scams. Poor Book-keeping Inability to maintain appropriate books of accounts together with failure to reconcile the various accounts of the bank on daily.  Conspiracy between interacting agents charged with the responsibility of protecting the assets and other interest of the bank. This loophole can very easily be exploited by bank staff that is fraudulent.8. 9. Aside the above-mentioned causes of fraud.  Poor working conditions. weekly or monthly basis more often than not will attract fraud. salaries and fringe benefits which are accruable to bank staff. 2. EXTERNAL FACTORS 72 . The prevalence of fraud and forgeries are an indication of weakness in a bank’s internal control systems.  Poverty and infidelity of employees.

Little or no premium is put on things like honesty.Environmental factors are those that can be traced to the banks immediate and remote environment. integrity and good character. It is a fact of our time that fraud has its root firmly entrenched in the social setting where wealth is honored without questions. Our present society is morally bankrupt. With reference to fraud. Our societies have debased the entire old moral standards and appear to be unconcerned with probity. dishonestly it has been acquired. all in a bid to continue to gain customers goodwill and stimulate their clients’ confidence all the time. All these encourage fraud as the end seems to justify the means. The family friends. The banking industry is not immune from the going on in its external environment. Ours is a materialistic society which to a large extent encourages fraud. criminal motivation is said to be pathological when the state of mind of the criminal disposes and impels him to commit fraud even though he is not in dire need of the resources. and no means seems to be morally unacceptable. If the whole society of which the bank is a part is morally bankrupt it will be difficult if not impossible to expect the banks to be insulated from the effects of such moral bankruptcy. extreme want that is often characterized by need. Bank frauds seriously endanger the organizational growth of a bank as it leads to bank distress. This is because fraud reduces the deposits of depositors and ultimately leads to the erosion of the capital base of banks. the religious houses and society at large seem not to care how you come about your riches but accept. The desire to be with the high and mighty caliber of the society. The cost of fraud is also usually difficult to estimate because not all frauds are discovered or even reported since most banks have a propensity to cover up the frauds emanating from their banks. The society does not question the source of wealth. accommodate and even respect you for your wealth. cultural demands or the cultivation of a life too expensive for the legitimate income of the individual. honesty. EXTERNAL FACTORS 73 . Any person who stumbles into wealth is instantly recognized and honored. however. integrity and “good name”.

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Job Insecurity: Nowadays job insecurity is one of the serious problems that leads to banking frauds. In India there is so much poverty so that people are makes the frauds for removing there poverty because some peoples wants the all type of facilities in their life and wants to improve their standard of living. 4. Because of the job insecurity some peoples want to reserve money that in future they can use. So for satisfying the future needs and wants he is undertake the baking frauds. Widening Gap between the Rich and the Poor In India there is so much gap between the rich and poor people. So this gap is increasing by day –today and this leads to the banking frauds and scams.1. 3. So every bank there should be strong procedures to handling this type of baking frauds. Because of money some peoples are behaving different . Permanent jobs are very less.In most of sectors there is a partiality between the rich and poor peoples. So poverty is also leads to banking frauds. The needs and wants of the people are increasing so money is become necessary to satisfied that needs and wants. 2. So they started the illegal activities for earning money. 5. If in every bank there is a strong measures and fast legal process to deal with the frauds then chances of will be less or minimize. Peer Group Pressure: 75 . Poverty The reason for banking frauds is poverty. So for living the money is so much important. Slow and Tortuous Legal Process In Banks there is a slow legal process which is one of the reasons for occurring the frauds.

The life has become too fast. The overburdened staff was given the highest weight age as the reason responsible for bank frauds. 6. Lack of Proper Training There is lack of properly trained and experienced person. There is a sudden and tremendous increase in banking business.The another reason for happening the frauds is that there is peer group pressure in some of the banks.77% of respondents have not undergone any formal training in prevention of bank frauds. So because of that people are doing this illegal activities which are very harmful to all the society. Lack of Sufficient Staff Moreover bank staff feels overburdened. New recruits often do not have adequate training or experience before they are put in responsible positions. The sudden expansive explosion has created a vacuum of personnel. The banker does not have enough time to scrutinize documents thoroughly. The findings reveal that 68. 76 . Increased financial burden on Individuals: There is so much financial burden on each and every individual so because of that financial burden people are stated to earning from doing the bank frauds 7. 8. About two thirds of the respondents feel that they do not have sufficient staff to carry out the work meticulously.

He emphasized the point that awareness and education is the key to defeating fraud. but thoroughly undetected and unreported crimes in Indian banking industry. salary structures tied to profits and no education on how to report fraud. Employees and employers both need to be aware of the prevalence of bank fraud. In regards to the point of awareness and education being key to defeating bank fraud. of course education and awareness is key to defeating fraud.CHAPTER NO-11 TRIANGLE OF FRAUD Classical Fraud Motivation Model Banking Fraud is at present one of the most commonly perpetrated. how bank fraud is commonly perpetrated. but there is a lot more to it than simple education. Banking Fraud is broadly defined. So. which is then believed and acted upon by the victim. high turnover of staff. A speaker at a business advisory conference recently outlined a set of the usual characteristics of a company that may lead to fraud. how to recognize bank fraud and the attitudes to convey for these fraud are imperative for employers to learn and implement. lowly skilled & trained staff . It would say in a broad sense. and low employee satisfaction as a rationalization. the speaker has common characteristics leading to bank fraud. The systems of stopping bank fraud. as common characteristics. analytical anomalies. this is correct. again. and how to combat bank fraud. Some of these included low morale. So the triangle of the bank fraud is explained as follows: 77 . while it is a bit light in the pressure section. It is probably also include employee unwillingness to take holidays as an opportunity. to their detriment. but can be considered to be any intentional deception that is characterized by a false representation of a material point. or at least minimizing it greatly. As you can see. management attitude.

lack of punishment and inadequate infrastructure. information. The opportunity to commit fraud is possible when employees have access to assets and information that allow them to both commit and conceal fraud. therefore. be limited to only those systems. and assets that are truly necessary for an employee to complete his or her job. failure to enforce internal controls and various other factors such as apathy. 78 . Opportunity The executor of fraud must believe that he or she can commit the fraud without being caught (or if caught.1. lack of internal control procedures. Opportunities are provided by a weak internal control environment. ignorance. nothing grave will happen). Access must.

or to report results that are better than actual performance compared to those of competitors) and other pressures (frustration with the nature of work. Rationalization/Absence of guardians refers to the manner in which people think about their work. gambling. work-related pressures (high pressure for good results at work or a need to cover up someone’s poor performance. vices (drugs. attach a value that they should derive from the company for being productive or delivering something of value. or even a challenge to beat the system). Rationalization The third driver of fraud is ability of the perpetrators to find a way to rationalize their actions as acceptable. 79 . Pressures that motivate individuals to commit fraud are financial pressures (high medical bills or debts). therefore. alcohol). 3.2. Pressure Every fraud executor is confronted with some kind of pressure or “need”. They. This need‟ or greed usually has a combination of other factors such as the opportunity and the attitude to commit the fraud. performance and contribution within the workplace. Absence of guardians. on the other hand. refers to the situation.

the focus is now on early detection 80 .CHAPTER NO-12 FRAUD DETECTION IN REAL-TIME FOR BANKS Statutory requirements clearly show that bank fraud poses a serious threat to banks. While retrospective fraud detection was top priority in the past.

suspicious activities reports.or prevention. the solution offers initial and continual risk classification for new and existing customers and provides due diligence functionality in the attached research system. event patterns and correlations. The alerts generated by the system are based on customer and transaction data. and on custom user settings. Prevention measures aim at the early detection and handling of fraud risks to prevent financial and reputational damage. and of events  Simulation options (what–if analyses)  Multi-clients and multi-lingual user interfaces  Standard modules and flexible adjustment options  Best-practice check scenarios from a large number of customer installations  Easy integration with banking systems through standardized and flexible interfaces  100% audit-proof documentation 81 . The imbedded real-time module grants minimal response times with high decision quality and aims at fraudulent activities with a high damage potential. Some solutions offer:  Coverage of all statutory requirements  Real-time analysis of data and events to trigger alerts  Comprehensive check of system access by employees. Clear-structured dashboards visualize cases of bank fraud. and detected alerts. Apart from the bank's database-founded risk analysis. There are offers bank an integrated anti-fraud solution that not only detects bank fraud but assesses and thwarts transaction and process alerts in real-time. customers and their transactions.

CHAPTER NO-13 ACTIONS TAKEN BY BANK TO MINIMIZE THE BANK FRAUDS Banks should adopt the following actions for minimize the bank frauds: ACTIONS TAKEN BY BANK 82 .

Our research has found that the innovation agenda is central to banks strategic growth plans and 83 . adopting a more commercial and customer-focused approach and using technology innovation to provide customer-centric solutions.t c n t l at oe u r m l t i i n 1. Assess fraud implication of banks Strategy The fraud function has an opportunity to transform its role and status by thinking and acting more like a stakeholder in the business. Understanding the risks will enable capability or knowledge gaps to be identified and mitigating actions to be taken.A s s F a d I p c o s DM le tPCD CIoa nSAr CeyB ofla r s l o h a T o s mm e t g t vm e o e v op u ye s n h a n r l a h ue i y c s r i d p s n i e a r e . This involves assessing the risk factors and their relative volatility.

Governance of models. Experience also shows that business units in many organizations elect for point solutions. proper governance should also be established.AML solutions without the appropriate capabilities for dynamic optimization. Going forward. as criminals are more sophisticated and increased processing power is available through cloud technologies. They will use analytics to gather historical data that will help them find the answer. Organizations that fail to maintain and optimize their systems are likely to be targets for fraudsters. there is a clear risk that a lack of coordination and integration will seriously undermine the effectiveness and efficiency of enterprise-wide fraud management.therefore will open up new risks for banks in the areas of fraud management and IT security. to optimize analytical models. gaining a better understanding of current and future customer demographics provides the opportunity to predict future vulnerabilities thereby turning fraud management into a competitive advantage by developing products and services that meet the needs of customers. analytics and rules changes is coming under increasing regulatory interest and therefore. Typically. For example. fraud managers will start with a business outcome or goal rather than a hypothesis. Fraud interventions which impact the customers should be based on individual customer behavior and circumstance. 2. fraud managers would have a hypothesis which they would test with analytics (often calling on credit risk resources to perform the analysis). Fraud management must be highly responsive. They will then reuse analytics to create statistical or machine-learning models of the data to answer their question. Model customer behaviors and situations Fraud solutions and offerings should be developed and refined to address the risks of individual customers or customer segments. 3. In the past. This positions the fraud management function as an insightful guide to the business. as part of developing this capability. 84 . This will create an increasing need to bring various data sources together. banks need to interact more closely both with internal and external analytical resources and with software suppliers. Develop Dynamic Analytical models Our experience is that banks have historically deployed anti-fraud and anti. Fraud teams need to be equipped with the skills and processes to manage this. When this occurs. enabling the design and implementation of robust fraud mitigation as part of the overall customer offering.

customer-centric authentication strategy that provides consistency of customer experience and reduced cost for deployment while managing risk. retailer. and fourth. 5. as trusted advisor. needs to work with the business to develop a panchannel. member of staff. whether such aspects involve a customer. The authentication strategy will shape the IT strategy. mobilize the change. Develop Pan-Channel Customer Authentications Customer on-boarding and ongoing authentication policy are no longer the preserves of the compliance function or of the individual channel owner. 4. The fraud management team. and the development of strategy should cover the following four key elements to optimize the business value derived: first. second. CHAPTER NO-14 PRESENT NEW FRAUD PREVENTION CHALLENGES Present new fraud prevention challenges 85 . These are essential elements of the customer’s experience and therefore key to business growth and customer retention. banks should consider what changes would need to be made to effect decisions based on a holistic overview of the many different aspects of a transaction. define authentication. communicate the strategy. device or anything else.particularly if an organization has deployed a number of non-integrated point fraud solutions. develop the authentication solutions. Develop the IT Strategy for Holistic Decision The first step revising the IT strategy to incorporate Customer Authentication Strategy and Analytical Capability Requirements is considered very important. Second. third.

It is found that many victims are unlikely to tell anyone about it. Changing customer demographics Populations are aging. To do this successfully. banks may want to re-think their approach to how customers identify themselves as the customer’s “team” will require access to funds in this environment.CAM rio cnt emt dla ira s nk e o oa hd a n ge ue ws x ce p n e g ms pn d n ao n p o t hr g t f o n i h i o e o s i g c 1. 86 . 9% got advice from organizations such as the Citizens Advice Bureau. and 72% did not tell friends or family about it.5 million of those people were fraud victims. look at each individual transaction holistically. and that there is still a feeling of embarrassment related to being scammed. Banks would have to look at each customer as an individual and. with 34% of scams occurring via the internet. The research also found that the most common type of scam people fell for was online fraud. creating a large group that has assets but is vulnerable to attack. this group can also be vulnerable to exploitation by relatives and caregivers. As the numbers of people using family or other caregivers to help them manage their finances rises. And 2. Whilst some financial crime committed against the elderly is committed by strangers. Only 8% went to the police. by extension.

Over 600 million individuals were on Face book by early 2011. While much of this money is used for immediate family needs. 116 are in emerging markets. will also grow as more people become comfortable with the digital 87 . Market expansion Banks’ expansion into emerging markets is likely to continue as they represent circa 50 of GDP and only 30% of the global consumer banking revenue pool. Rapid urbanization accelerates the trend toward increased fraud. Among the top 150 cities worldwide. Know Your Customer (KYC) data in emerging markets pose specific problems for banks seeking to limit fraud losses. Adoption of new technologies and channels Broad adoption of new technologies such as social media and mobile internet has created new channels for transfers and purchases. remittances sent home from migrant workers are estimated to be three times the flow of aid sent from rich countries to poorer countries. which makes it easier for perpetrators of fraud to conceal their activities. Social networks can be used by fraudsters to secure customer data. This creates the risk of volumes overwhelming existing (often manual) fraud controls. However. 3. there is a significant portion available for savings and investment and banks have targeted this market with new products and offerings. putting criminals in closer proximity to each other and encouraging the sharing of information as well as the recruitment of allies and accomplices. The opportunities to do so. Remote banking access. and nearly 3 billion consumers worldwide will be global 3G subscribers by 2015. international cyber-criminals will be tempted to operate in markets where they feel fraud controls are less sophisticated and local criminals may migrate to bank fraud from other crimes. New payment channels such as mobile phones create technical risks for the banking sector to manage. fraud management and prevention techniques in emerging markets are not fully mature and a rush to expand into these markets could lead to significant fraud losses. In addition. Large migrant communities may need transfer and payment systems to support the flow of remittances to home countries. is attractive to criminals. and attacks on remote access points are likely to continue to grow in value. presenting low personal risk. Indeed. along with numerous new opportunities for fraud.2. speed and sophistication. share methodologies and recruit new accomplices. The volume of international payments traffic will also increase in line with growth in emerging markets.

said they preferred to bank online in a recent survey. including 57% of those over the age of 55. means that banks must explore innovations in. including biometrics. Clients across geographies lead us to believe that direct channels to the consumer will see continued large-scale attacks. Banks that are slow to adapt new protective measures may find themselves ruthlessly attacked. banks should consider combining two previously distinct functions—IT Security and Fraud Management—to address the increasingly technical nature of fraud attacks. STATE BANK OF BIKANER AND JAIPUR 88 . for example. The growth of new markets and the proliferation of channels. As the customer experience is transformed. with criminals sharing and even jointly developing new methodologies. Customers typically prefer to interact with their bank through their chosen channel with simple and convenient on-boarding and ongoing identity and verification procedures. CASE STUDIES 1. to secure both themselves and their customers from identity and verification procedures new kinds of attack.environment and bank online.

06. 2. form-16. July 2013 & no salary is being paid by the department. 2. department and post dated cheques (PDCS) of salary saving a/c of borrower with branch pre-sanction inspection of office & resident of borrower was conducted by the branch officials. at the time of sanction. the details of salary provided to the branch did not tally with the detail of salary records with department. Branch obtained KYC documents.2013. salary certificate & irrecoverable authority letter issued by respective govt. due to non credit of salary in saving a/c of borrower with branch on taking up the issue with employer it was found that letter of authority was fake.2014 Place of occurrence : Jaipur Name of the principal party/account : shri RKB Area of operation where the fraud has occurred : term loan Nature of fraud: C.06.F.50 lakhs on 26. It is also reported that the employee is absent since. employee) was sanctioned a personal loan for Rs.2013 Date of detection : 22. In lakh ) : 2.46 Modus operant: shri RKB (state govt. Amount of involved (Rs. Recovery in the loan a/c was not for incoming & a/c stood overdue. Besides. CENTRAL BANK OF INDIA 89 .46 Total recovery in lakhs : 2.         Date of occurrence : 26.01.

funds were directed to company’s a/c’s with other bank’s & not utilized for the purpose for which it was financed thus. The account was classified as NPA on investigation it was observed that.  company Complaint lodges : FIR lodges with the police on 03.01. Letter of credit (DA/DP) inland/ import/ 100 crores stand by LC buyer’s credit & usance in 90 days inland 180 day import.2013 Place of occurrence : Ahmadabad Name of the principal account : Advance Area of operation where fraud has occurred : export credit Nature of fraud : C & F Total amount involved : Rs.74 lakhs Amount recovered : Nil Brief history (modus operandi) : M/S ‘E’.2010 Date of detection : 06. 38525. 2.08.00 crores.11.2014          VISIT REPORT 90 .Date of occurrence : 13. a company was enjoying credit facilities with consortium of banks. The company approach education our bank for credit facilities outside purview of consortium arrangement for executive of project in Tonzonic. 1. Short term loons (unsecured) for 90 days – 50.00 crores 3. The credit facilities were sanctioned to the company as under. Export packing credit (270 day’s) backed by confirmed order/ LC cum EBP/ EBD – 330. has misrepresented the fact’s & cheated the bank.

what techniques they use.K. He told me about new types of banking frauds. According to him there are many techniques and ways to minimize the banking frauds and scams. etc. It was good experience for me as now. 91 . And various challenge which are there in banks regarding bank frauds.SHAJI he guided me many things regarding my project and helped me up to my satisfaction . The branch manager of IOB bank Mr. He also told me about the banking strategies to deal with frauds. He also told me the punishment for the persons who does bank frauds.For collection of primary data I have visited INDIAN OVERSEAS BANK KALYAN (W) branch.The various types of banking frauds happens in banks. Bank manager told me that how they take steps to minimize banking frauds and scams. He told me that there are fraud experts in banks to prevent the frauds and security system of bank. P.He guided me about banking frauds and scams . I have come to know the practical aspects regarding my topic Frauds and scams in Banking Sector.

RBI also engaged in making the banking system accurate and secure. loss of bank money. Online transactions are widely used than the manual transactions. creditability etc. However the prima donna in the drama is the insider or the banker. desperate customers or of errant bankers or their collusion inter se. The number of bank frauds has been increasing year on year along with that. reduced the amount of profit. Banks take actions to minimize these bank frauds. Bank frauds are the creation of professional criminals. Bank frauds concern all citizens.e. He is often the target and at times the tool.CONCLUSION Bank frauds are done to make money by cheating the banks. It has become a big business today. There are always new challenges in banking sector but they are competent to deals with that challenge. low asset quality. Due to the frauds the profit of the company is getting affected. banking frauds done insiders and frauds done outsiders. There are some effects of these frauds on banks like public loss confidence in banks. He opens the purse. There are two categories of banking frauds i. WEB BIBLIOGRAPHY 92 . it helps to increase the operating cost of banks. The Reserve Bank of India (RBI) has drawn up new rules for banks aimed at preventing frauds and irregularities. or to obtain money from depositors by fraudulently posing as a bank or other financial institution. There are several loopholes in banking system that has been used by fraudsters. IT in banking sector is much more advanced than the traditional banking. But there are also bank rules to prevent the banking frauds and scams. assets. There are internal factors and external factors which are responsible for banking frauds and scams. Bank fraud is the use of potentially illegal means to obtain money. Occasionally. or other property owned or held by a financial institution. he is the victim of the temptations.

http://www.com/what-is-bank-fraud.wisegeek.ehow. https://www.net/akshayvirkar/frauds-scams-in-banks C.com/about_6396210_online-bankingfraud_. http://www. http://www.html F.aspx? ID=644b29ed-fee8-4c25-ac71a50a65db78bc&txtsearch=Subject:%20Finance/Banking B.com/articles/PopOpenArticle.slideshare.com/wiki/Bank_fraud?lang=en E.anz. http://www. http://in.ask.com/personal/ways-bank/security/onlinesecurity/threats-banking-safety/fraud-types/ D.htm ANNEXURE 93 .manupatrafast.A.

Is the banking frauds affects on the performance of the banks? Yes No 10.Do you think that frauds and scams are happening in banks? Yes No 2. Are you satisfied with the measures to preventing the banking frauds and scams? Yes No 5.Do you think that banking frauds and scams are harmful to the society? Yes No 3. Do you have some steps to protect your bank from the banking frauds and scams? Yes No 6. Which Strategy your bank is taken to protect from the banking frauds and scams? Answer: 7. Does the bank frauds and scams affects the goodwill of the banks? 94 .Name of the Bank : Name of the Banker : Gender : Male Female Qualification : 1 . Do you have the fraud experts in your bank to monitor the transactions to protect your bank from criminal activities? Yes No 9. Do you think that scams and frauds deal in banks are connected to the politics? Yes No 8. Is frauds and scams have ever occurred in this bank? Yes No 4.

Yes No 11. Can banks ever operate without an incidence of frauds and scams? Yes No 17. Does you bank follows the RBI regulations regarding the banking frauds and scams? Yes No 12. Is there any penalty for the persons who does the banking frauds and scams? Yes No 13. Do you think that banking frauds and scams are happen because of the poor management? Agree Disagree Strongly agree strongly disagree 15. Any idea What kind of frauds can take place in the future? Answer: 14. Do you think that because of the banking frauds and scams the profit of the bank is decrease? Yes No 95 . Does the recruitment method have a direct link with the rate of frauds and scams in baking sector? Yes No 16.