KOHINOOR BUSINESS SCHOOL

PROJECT REPORT
ON

“FRAUDS IN BANKING SECTOR – A STUDY OF

CONSUMER AWARENESS”

SUBMITTED TO
KOHINOOR BUSINESS SCHOOL
BY
SOHAM EKNATH GURAV
Roll No. 18
Batch: 2018-2020
IN PARTIAL FULFILLMENT OF
MASTER OF MANAGEMENT STUDIES (MMS)
UNIVERSITY OF MUMBAI
March, 2020

1
 DECLARATION

I, Mr.SOHAM EKNATH GURAV, hereby declare that this project report is the record of authentic
work carried out by me and has not been submitted to any other University or Institute for the
award of any degree / diploma etc.

Signature -:

Name of the student: - SOHAM EKNATH GURAV

Date -:

2
 CERTIFICATE
This is to certify that Mr. SOHAM EKNATH GURAV of KOHINOOR
BUSINESS SCHOOL has successfully completed the project work titled
“A STUDY ON FUNCTIONING AND OPERATIONS OF
AKSHAYA PATRA FOUNDATION WITH RESPECT TO THE
CANTEEN DEPARTMENT ”in partial fulfilment of requirement for the
completion MMS as prescribed by the University of Mumbai.

He has worked under my guidance.

-:
Signature
Prof. NIKHIL UBALE
Project Guide
Date:

3
 INDEX
1) EXECUTIVE SUMMARY

2) INTRODUCTION TO RESEARCH WORK

Objective of Study
Research Methodology
Limitation of the Study

3) INTRODUCTION TO SECTOR
Role of Banking
Types of Banks

4) MEANING OF FRAUD
Fraud over the Years
Overall Evolution

5) CONCEPTUAL FRAMEWORK
Frauds in Banking Sector
Classification of Frauds

6) SECURITY IN BANKING SYSYTEM

7) RBI GUIDELINES REGARDING FRAUDS

8) DATA ANALYSIS & INTERPRETATION

9) FINDINGS, SUGGESTIONS & CONCLUSION

10) BIBLIOGRAPHY

4
 EXECUTIVE SUMMARY

The Indian banking sector has experienced considerable growth and changes since
liberalization of economy in 1991.
Though the banking industry is generally well regulated and supervised, the sector
suffers from its own set of challenges when it comes to ethical practices, financial
distress and corporate governance.

This study endeavors to cover issues such as banking frauds and mounting credit
card debt, with a detailed analysis using secondary data (literature review and case
approach) as well as an interview-based approach, spanning across all players
involved in reporting financial misconduct.

The report touches upon the case of rising NPAS in the past few years across
various Scheduled commercial banks, especially public sector banks.

The study finally proposes some recommendations to reduce future occurrence of

frauds in Indian banking sector.

The Credibility of third parties Such as auditing firms and credit rating agencies is
also questioned in the study and is believed to be a significant contributor amongst
other.

5
 INTRODUCTION TO RESEARCH WORK

Objective of Study

 To study what kind of frauds takes place and how consumers are affected by
it.

 To understand how banks and other financial institutions take preventive

measures.

 To understand what are the loopholes in a bank where fraudulent practices

can take place.

 To study the overall consumer mentality towards bank frauds and study their
experience.

 To understand and analyze underlying causes contributing to increasing

trends in frauds committed in Indian Banking sector.

 To suggest and help implement the appropriate measures so as to make the

consumers aware and also help them to avoid getting into such situations of
fraud.

6
Research Methodology
Research is a process in which the researcher wishes to find out the end result for a
given problem and thus the solution helps in future course of action.

According to Redman and Mory, research is defined as “A systematic effort to gain

new knowledge”.

This study helps to explore how different frauds are taking place in the overall
banking industry and also how consumers are affected by it. Methodology helps to
understand how and why the research was carried out. It provides justification and
verification of the result to be genuine and valid. This study is on frauds taking
place in the banking sector and how does it affect the consumers and also banks as
a whole and also to analyses how aware the consumers are about such frauds.

Universe/Population
The survey conducted was through convenient sampling, as the respondents were
random i.e. they are consumers of various different banks having different types of
account and usage. It is collected from 40 approximately customers with different
genders and age groups belonging to Borivali and Kandivali out of which 35
questionnaires have been considered for analysis.

Sampling
Sampling is process used in statistical analysis in which a predetermined number
of observations are taken from a larger population. The methodology used to
sample from a larger population depends on the type of analysis being performed.
Sampling is concerned with the selection of a subset of individuals from within a
statistical population to eliminate characteristics of the whole population.

Sample Size
The sample size is an important feature of any empirical study in which the goal is
to make inferences about a population from a sample. In practice the sample size is
used in a study is determined based on the expense of data collection, an need to
have sufficient statistical power.

7
I have collected the data based on a survey which had 35 respondents includes
male and female both from different age groups. The survey had different
questions based on Frauds in the banking sector.

Also some data related to frauds have been collected by interviewing bank
employees of two banks ( AXIS bank , HDFC bank ).
During the interview I asked them basic questions, which were related to Frauds in
the banking sector and how they deal with it! The same has been attached in the
annexure.

Methodology used to collect data

Primary Research
A dual approach was undertaken overall to collect the data on frauds in the whole
wide banking sector and the whole institution overall.

An overall analysis conducted by meeting and interviewing different bank

officials, retired bankers, and also normal banking consumers who use such
banking facilities so as to get data and seeking information about the overall
awareness and how people are affected by such frauds if there are any. Survey
method was used to collect information from the consumers and the data collected
from them about the awareness of their fraud based knowledge in regards to
banking and how they were affected is broken down further later in the research
book. The data then has been converted into graphical illustration so it could be
understood in a better way.

Also in the end conclusions have been stated taking into consideration the
consumers response and the data we got from bank employees.

Secondary Research
This was based on the data collected from different sources and also different case
studies. The data were collected from the storehouses of different bank sites and
also some private entities. The data and trends also have been collected from the
RBI site and it has been captured from the data, which it has stored and listed
online, and at various other places for everyone to see.
Also different sites of private financial institutions have been used
8
Limitations of the study

 The respondents who have not given any information are not included in the
sample but do come under the population.

 It was not possible to cover each and every client of each and ever bank so
hence the survey of only few of the people has been conducted.

 Some consumers didn’t want to share their experiences due to personal

reasons relation to the bank accounts and it was tough to get them to speak
up for their rights.

 Classified data couldn’t be collected from the bank employees, as they were
not allowed to publically speak about it.

9
 INTRODUCTION TO THE SECTOR

Meaning of Bank
You know people earn money to meet their day-to-day expenses on food, clothing,
education of children, housing, etc. They also need money to meet future expenses
on marriage, higher education. Business Studies 4 of children, house building and
other social functions. These are heavy expenses, which can be met if some money
is saved out of the present income. Saving of money is also necessary for old age
and ill health when it may not be possible for people to work and earn their living.
The necessity of saving money was felt by people even in olden days. They used to
hoard money in their homes. With this practice, savings were available for use
whenever needed, but it also involved the risk of loss by theft, robbery and other
accidents. Thus, people were in need of a place where money could be saved safely
and would be available when required. Banks are such places where people can
deposit their savings with the assurance that they will be able to withdraw money
from the deposits whenever required. People who wish to borrow money for
business and other purposes can also get loans from the banks at reasonable rate of
interest. Bank is a lawful organization, which accepts deposits that can be
withdrawn on demand. It also lends money to individuals and business houses that
need it. Banks also render many other useful services – like collection of bills,
payment of foreign bills, safe-keeping of jewelry and other valuable items,
certifying the credit- worthiness of business, and so on. Banks accept deposits from
the general public as well as from the business community. Anyone who saves
money for future can deposit his savings in a bank. Businessmen have income from
sales out of which they have to make payment for expenses. They can keep their
earnings from sales safely deposited in banks to meet their expenses from time to
time. Banks give two assurances to the depositors –

a. Safety of deposit, and

b. Withdrawal of deposit, whenever needed

On deposits, banks give interest, which adds to the original amount of deposit. It is
a great incentive to the depositor. It promotes saving habits among the public. On
the basis of deposits banks also grant loans and advances to farmers, traders and
businessmen for productive purposes. Thereby banks contribute to the economic
development of the country and wellbeing of the people in general. Banks also
charge interest on loans. The rate of interest is generally higher than the rate of
interest allowed on deposits. Banks also charge fees for the various other services,

10
which they render to the business community and public in general. Interest
received on loans and fees charged for services which exceed the interest allowed
on deposits are the main sources of income for banks from which they meet their
administrative expenses. The activities carried on by banks are called banking
activity. ‘Banking’ as an activity involves acceptance of deposits and lending or
investment of money. It facilitates business activities by providing money and
certain services that help in exchange of goods and services. Therefore, banking is
an important auxiliary to trade. It not only provides money for the production of
goods and services but also facilitates their exchange between the buyer and seller.
You may be aware that there are laws which regulate the banking activities in our
country. Depositing money in banks and borrowing from banks are legal
transactions. Banks are also under the control of government. Hence they enjoy the
trust and confidence of people. Also banks depend a great deal on public
confidence.

Role of Banking
Banks provide funds for business as well as personal needs of individuals. They
play a significant role in the economy of a nation. Let us know about the role of
banking.

• It encourages savings habit amongst people and thereby makes funds available
for productive use.

• It acts as an intermediary between people having surplus money and those

requiring money for various business activities.

• It facilitates business transactions through receipts and payments by cheques

instead of currency. Business Studies 6

• It provides loans and advances to businessmen for short term and long-term
purposes and It also facilitates import export transactions.

• It helps in national development by providing credit to farmers, small-scale

industries and self-employed people as well as to large business houses which lead
to balanced economic development in the country.

• It helps in raising the standard of living of people in general by providing loans

for purchase of consumer durable goods, houses, automobiles, etc.

11
 Types of Banks

There are various types of banks which operate in our country to meet the financial
requirements of different categories of people engaged in agriculture, business,
profession, etc. On the basis of functions, the banking institutions in India may be
divided into the following types:

 Central bank (RBI)

 Development banks
 Commercial banks
 Public sector banks
 Private sector banks
 Foreign banks
 Specialized banks (EXIM bank, SIDBI, NABARD)
 Co-operative banks
 Primary credit societies
 Central Co-operative banks
 State Co-operative banks

a) Central Bank
A bank which is entrusted with the functions of guiding and regulating the
banking system of a country is known as its Central bank. Such a bank does not
deal with the general public. It acts essentially as Government’s banker,
maintain deposit accounts of all other banks and advances money to other
banks, when needed. The Central Bank provides guidance to other banks
whenever they face any problem. It is therefore known as the banker’s bank.
The Reserve Bank of India is the central bank of our country. The Central Bank
maintains record of Government revenue and expenditure under various heads.
It also advises the Government on monetary and credit policies and decides on
the interest rates for bank deposits and bank loans. In addition, foreign
exchange rates are also determined by the central bank. Another important
function of the Central Bank is the issuance of currency notes, regulating their
circulation in the country by different methods. No other bank than the Central
Bank can issue currency.

12
b) Commercial Banks

Commercial Banks are banking institutions that accept deposits and grant
short- term loans and advances to their customers. In addition to giving short-
term loans, commercial banks also give medium-term and long-term loan to
business enterprises. Now-a-days some of the commercial banks are also
providing housing loan on a long-term basis to individuals. There are also many
other functions of commercial banks, which are discussed later in this lesson.

Types of Commercial banks:

Commercial banks are of three type’s i.e.
 Public sector banks
 Private sector banks
 Foreign banks.

(i) Public Sector Banks:

These are banks where majority stake is held by the Government of
India or Reserve Bank of India. Examples of public sector banks are:
State Bank of India, Corporation Bank, Bank of Baroda and Dena
Bank, etc.
Among the Public Sector Banks in India, United Bank of India is one
of the 14 major banks which were nationalized on July 19, 1969. Its
predecessor, in the Public Sector Banks, the United Bank of India
Ltd., was formed in 1950 with the amalgamation of four banks viz.
Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd.
(1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd.
(1932). This Public Sector Bank India has implemented 14 point
action plan for strengthening of credit delivery to women and has
designated 5 branches as specialized branches for women
entrepreneurs.

(ii) Private Sectors Banks:

In case of private sector banks majority of share capital of the bank is
held by private individuals. These banks are registered as companies
with limited liability. For example: The Jammu and Kashmir Bank
Ltd., Bank of Rajasthan Ltd., Development Credit Bank Ltd, Lord
Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank,
Vysya Bank, etc. The first Private bank in India to be set up in Private
Sector Banks in India was IndusInd Bank. It is one of the fastest
13
growing Bank

14
 Private Sector Banks in India. IDBI ranks the tenth largest
development bank in the world as Private Banks in India and has
promoted a world class institutions in India. The first Private Bank in
India to receive an in principle approval from the Reserve Bank of
India was Housing Development Finance Corporation Limited, to set
up a bank in the private sector banks in India as part of the RBI's
liberalization of the Indian Banking Industry. It was incorporated in
August 1994 as HDFC Bank Limited with registered office in
Mumbai and commenced operations as Scheduled Commercial Bank
in January1995.

(iii) Foreign Banks:

These banks are registered and have their headquarters in a foreign
country but operate their branches in our country. Some of the foreign
banks operating in our country are Hong Kong and Shanghai Banking
Corporation (HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grind lay’s Bank, etc. The number of foreign banks
operating in our country has increased since the financial sector
reforms of 1991.

c) Development Banks

Business often requires medium and long-term capital for purchase of

machinery and equipment, for using latest technology, or for expansion and
modernization. Such financial assistance is provided by Development Banks.
They also undertake other development measures like Public Sector Banks
comprise 19 nationalized banks and State Bank of India and its 7 associate
banks. Business Studies 8 subscribing to the shares and debentures issued by
companies, in case of under subscription of the issue by the public. Industrial
Finance Corporation of India (IFCI) and State Financial Corporations (SFCs)
are examples of development banks in India.

15
d) Co-operative Banks

People who come together to jointly serve their common interest often form a
co- operative society under the Co-operative Societies Act. When a co-
operative society engages itself in banking business it is called a Co-operative
Bank. The society has to obtain a license from the Reserve Bank of India before
starting banking business. Any co-operative bank as a society is to function
under the overall supervision of the Registrar, Co-operative Societies of the
State.
As regards banking business, the society must follow the guidelines set and
issued by the Reserve Bank of India.

16
 MEANING OF FRAUD

“Fraud is any behavior by which one person intends to gain dishonest advantages
over another'. In other words, frauds is an act or omission which is intended to
cause wrong full gain to one person and wrongful loss to other, either by Way of
concealment of facts or otherwise.”

Section 421 Indian Penal code defines" frauds" as "whoever dishonestly or

fraudulently removes, conceals or delivers to any person or transfers or cause to be
transferred to nay person, without adequate consideration any property, intending
thereby to prevent or knowing it to be likely that he will thereby prevent, or
knowing it to be likely that he will thereby prevent, the distribution of the property
according to law among his creditors of any person shall be punishment with
imprisonment of either description for a term which may extend to two years or
with fine or with both."

FRUADS OVER THE YEARS:

In recent years, instances of financial fraud have regularly been reported in India.
Although banking frauds in India have often been treated as cost of doing business,
post liberalization the frequency, complexity and cost of banking frauds have
increased manifold resulting in a very serious cause of concern for regulators, such
as the Reserve Bank of India (RBI). RBI, the regulator of banks in India, defines
fraud as "A deliberate act of omission or commission by any person, carried
out in the course of a banking transaction or in the books of accounts
maintained manually or under computer System in banks, resulting into
wrongful gain to any person for a temporary period or otherwise, with or
without any monetary loss to the bank’’.

In the last three years, public sector banks public sector banks in India have lost a
total of Rs. 22,743 crore, on account of various banking frauds. With various
measures initiated by the RBI, numbers of banking fraud cases have declined, but
amount of money lost has increased in these years. Prima facie, an initial
investigation in these cases has revealed involvement of not only midlevel
employees, but also of the senior most management as was reflected in the case of
Syndicate Bank and Indian Bank. This raises serious concern over the effectiveness
of corporate governance at the highest echelons of these banks. In addition, there
has been a rising trend of non-performing assets, especially for the Public sector
banks, thereby severely impacting their profitability. Several causes have been
attributed to
17
risky non-performing assets, including global and domestic slowdown, but there is
some evidence of a relationship between frauds and non-performing assets as well.
The robustness of a country's banking and financial system helps determine its
production and consumption of goods and Services. It is a direct indicator of the
well-being and living standards of its citizens. Therefore, if the banking system is
plagued with high levels of NPAS then it is a Cause of Worry, because it reflects
financial distress of borrower clients, or inefficiencies in transmission mechanisms.
Indian economy suffers to a great extent from these problems, and this served as
the prime motivation for the authors to carry out this detailed study of frauds in the
Indian banking System and examining frauds from different angles. This study
takes into consideration, different aspects of Indian banking sector. Specifically for
this study, primary Semi-structured interviews were conducted with bankers and
industry veterans to better understand sector dynamics. Finally, an attempt has
been made to give possible recommendations that can help mitigate these
problems.

The rest of the research are divided into different groups mainly stating the
limitations, objectives, method of the study with respect to other details which
were very important to state and what I came to know about this particular study in
detail are also stated further. The study conducted was also made by actually going
to banks and meeting bank executives who are at a good post and asking them
about this niche part of banking industry. Though they gave a lot of information
they hesitated to give me the whole over view of their own particular bank because
in the end they too have to look out for the reputation of their respective bank.
Further the study also provides how frauds in banking can be dealt with and how
can we all avoid getting into frauds by others and preventing such situations.

Overall evolution:
Banking system occupies an important place in a nation's economy. A banking
institution is indispensable in a modern Society. It plays a pivotal role in economic
development of a country and forms the core of the money market in an advanced
country.

Banking industry in India has traversed a long way to assume its present stature. It
has undergone a major structural transformation after the nationalization of 14
major commercial banks in 1969 and 5 more on 15 April 1980.

Banks are the engines that drive the operations in the financial sector, which is
vital for the economy. With the nationalization of banks in 1969, they also have
18
emerged

19
as engines for Social change. After Independence, the banks have passed through
three stages. They have moved from the character based lending to ideology based
lending to today competitiveness based lending in the context of India's economic
liberalization policies and the process of linking with the global economy.

A Sound banking system should possess three basic characteristics to protect

depositor's interest and public faith. These are
o A fraud free culture.
oA time tested Best Practice Code, and
oAn in house immediate grievance remedial system.
All these condition are there missing or extremely weak in India.

Section 5(b) of the Banking Regulation Act, 1949 defines banking as “Banking is
the accepting for the purpose of lending or investment, deposits of money from the
purpose of lending or investment, deposits of money from the public, repayable on
demand or otherwise and withdraw able by cheque, draft, order or otherwise.”
In the present day, Global Scenario Banking System has acquired new dimensions.
Banking did spread in India. Today, the banking System has entered into
competitive markets in areas covering resource mobilization, human resource
development, customer services and credit management as well.

With the rising banking business, frauds in banks are also increasing and the
fraudsters are becoming more and more sophisticated and ingenious. In a bid to
keep pace with the changing

mes, the banking Sector has diversified its business manifold, Replacement of the
philosophy of class banking with mass banking in the post-nationalization period
has thrown a lot of challenges to the management on reconciling the social
responsibility with economic viability.

The banking system in our country has been taking care of all segments of our
socio- economic Set up. A bank fraud is a deliberate act of omission or
commission by any person carried out in the course of banking transactions or in
the books of accounts, resulting in wrongful gain to any person for a temporary
period or otherwise, with or without any monetary loss to the bank.

"There are two principal methods of getting something from others illegally. Either
you put a gun next to their heads and force them to give it to you, or you trick or
deceive them out of their assets. The first type of theft we call robbery, with its
many varieties, and the Second We Call frauds."
- By WSteve Albrecht, Gerald W. Wernz, and Timothy L. Williams

20
Banks are the engines that drive the operation in the financial sector, which is vital
for economy. With the nationalization of banks in 1969, they also have emerged as
engines for social change. After independence, the banks have passed through
three stages. They have moved from the character-based lending to ideology-based
lending to today's competitiveness-based lending in the context of India’s
economic liberalization policies and process of linking with the global economy.

While the operations of the banks have become increasingly signification, there is
also an occupation hazard.

There is a Tamil proverb, which says that a man who collects honey will
always be tempted to lick his fingers.
Banks are, all the time dealing with money, a temptation should therefore be very
high. Oscar Wilde said that the thief was an artist and policeman was only a critic.
There are many people who are unscrupulous and are able to perpetrate a fraud.
The banks should devise systems and procedures in way that the scope for such a
way that the scope for such clever and unscrupulous people's reduced.

With the rising banking business, frauds in banks are also increasing and fraudsters
are becoming more and more sophisticated and ingenious. In a bid to keep pace
with the changing times, the banking sector has diversified its business manifold.
Replacement of the philosophy of class banking sector has diversified its business
manifold. Replacement of the philosophy of class banking with mass banking in
the

21
post-nationalization period has thrown a lot of challenges to the management on
reconciling the Social responsibility with economic viability.

Section 5(b) of the Banking Regulation Act, 1949 defines banking. According to, it
banking means the accepting, for the purpose of lending or investment, of deposits
of money from the public, repayable on demand or otherwise, and withdrawals by
cheque, draft, order or otherwise. But if the money has fraudulently been drawn
from the bank, the later is under strict obligation to pay the depositor. The banks,
therefore has to ensure, at all times, that the money of depositor. The banks,
therefore, has to ensure, at all times, that the money of depositor is not drawn by
deceitful means.

The term 'fraud" in relation to banks generally refers to manipulation in the books
of accounts, fraudulent encashment to the negotiable instrument, unauthorized
handling of securities pledged or hypothecated to the banks, embezzlement by
bank employees, misappropriation of funds, pilferage of Cash, etc. In fact no list
can be exhaustive to cover all types of frauds. The term includes all the acts of
Omission and commission, which involve a breach of trust, misrepresentation or
misfeasance.

Slowly as banks and other institutions started to advance in the field of technology
more and more different types of frauds started taking place with the use of
technology. One of such new trend in frauds were the ID theft fraud also knows as
identity theft fraud. Fraud and identity theft occur when your personal information
(anything from your Social Security or bank account numbers to your name and
address) is stolen and the thief is able to use your information to commit fraud or
theft, potentially damaging your credit record and good name in the process.
The most common examples of theft include credit card fraud, phone or utility
fraud, bank fraud, employment-related fraud, government document or benefit
fraud and loan fraud. The frauds started taking place a lot after the age of online
banking started mainly by the use of forged documents and other means.

But not online technology but frauds through other methods like hacking emails
and other ways to get into your financial data also were used to conduct such
frauds. In the U.S. the total annual fraud cost was $20.6 billion in 2012.
Fraud and identity theft are not strictly online crimes. Some of the most successful
thieves employ low-tech methods such as stealing your mail, checking your
garbage for receipts and statements or grabbing your purse or wallet.
The frauds may be intentional or incident and can be committed by:
> The banks employees themselves, - The staff members of the banks in collusion
or Connivance with the Customers or outsiders, and
22
> The customers or outsiders.

23
 CONCEPTUAL FRAMEWORK

Frauds in banking sector:

The staggering growth of frauds in the banking sector has made banking a very
risky operation. Hence I have selected this project to see how banks deal with such
frauds and how the overall sector is adapting ways to fight it and what are the
drawbacks of it overall. To see if the consumers are aware of such frauds. As a
virtue as the topic suggest consumer awareness I have listed down the basics of
banking frauds its types, its classification and other areas of prevention and
detection.

The reserve bank of India – RBI maintains data on frauds of banks on the basis of
areas of operation under which the frauds have been perpetrated. According to
such data taking into consideration the data of 2009 of the calendar year the most
former types of bank frauds are as follows and also other types are listed too.

 Credit card
24
  Deposits savings account
 Internet banking
 Term loans
 Cheque/demand draft
 Cash transfer
 Cash credit account
 Advances
 ATM / debit cards

The above are the area where most of the frauds in this niche sector take place.
Also many banks operate heavily in such areas and also have systems to predict
any fraudulent practice taking place but at times the fraudster is an insider and may
know many loopholes and hence the preventive measures not always are viable.

25
Classification of Frauds
Taking into the consideration the types of frauds listed above there are other
classification of frauds too. Classification can be of many time in relation to each
of the frauds in the banking sector. Bank fraud is generally defined as a plan to
obtain financial gains or property from a financial institution or government
banking institution. Bank frauds maybe charged to both bank insiders and outsiders
or individuals. The number of bank frauds in India is substantial. It also has been
increasing with the passage of time and also the new banking technology and
methods are also drawing eyes of the fraudsters to target such new facilities
provided by banks and making out their loop holes so as to do fraudulent practices
with minimum risks. All the major operational area in banking represent a good
opportunity for fraudsters with growing incidence being reported under deposit,
loan and inter branch accounting transactions, including remittance. Bank fraud is
a big business in today’s world. Highly qualified people who have the insights of
the bank operations and also included in frauds at times because of their know
how. These highly skilled fraudsters who are highly educated and are well
connected with other institutions doing the same thing are known as white collar
fraudsters who do white collar frauds.

A bank fraud has a big list and a very wide scope to just consider in one project but
I have tried to include as many as I can.

Banking frauds can be classified as:-

1. Frauds by insiders
2. Frauds by outsiders

INSIDER FRAUDS INCLUDE: -

 Rogue trading
 Fraudulent loans
 Wire frauds
 Forged and fraudulent documents
 Uninsured deposits
 Identity theft
 Demand draft fraud

26
OUTSIDERS FRAUDS INCLUDE: -

 Forgery and altered cheques

 Accounting frauds
 Empty ATM envelop deposits
 Fraudulent loan application
 Phishing and internet frauds
 Money laundering

The short definitions of the above are given below and also what the examples were
relating to it are defined.

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

One famous rogue trader is Nick Leeson, whose losses on unauthorized

investments in index futures contracts were sufficient to bankrupt his employer
Barings Bank in 1995. Through a combination of poor judgment on his part,
increasingly large initial profits, lack of oversight by management, a naïve
regulatory environment, and an unforeseen outside event, the Kobe earthquake,
Leeson incurred a US$1.3 billion loss that bankrupted the centuries-old financial
institution.

The key factor determining the use of the term is lack of authorization. There have
been colossal financial losses and bankruptcies from what are considered to be
catastrophically bad decisions by senior decision-makers in financial institutions,
such as the bankruptcy of Lehman Brothers which necessitated the 2008 United
Kingdom bank rescue package, but this is not described as rogue trading and is not
punishable.

In the UK the term is also used to describe dishonest tradesmen such as double-
glazing salesmen, second-hand car dealers, gas fitters, mechanics, roofers, plumbers

27
and domestic rubbish collectors. A BBC Television program exposing such
practices was called Watchdog, which was later followed by Rogue Traders.

* Fraudulent loans
One way to remove money from a bank is to take out a loan, 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, however, is one in which the
borrower is a business entity controlled by a dishonest bank officer or an
accomplice; the "borrower" then declares bankruptcy or vanishes and the money is
gone. 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.

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.

* Wire frauds
Wire transfer networks such as the international SWIFT interbank fund transfer
system are tempting as targets as a transfer, once made, is difficult or impossible to
reverse. As these networks are used by banks to settle accounts with each other,
rapid or overnight wire transfer of large amounts of money are commonplace;
while banks have put checks and balances in place, there is the risk that insiders
may attempt to use fraudulent or forged documents which claim to request a bank
depositors money be wired to another bank, often an offshore account in some
distant foreign country. There is a very high risk of fraud when dealing with
unknown or uninsured institutions. The risk is greatest when dealing with offshore
or Internet banks (as this allows selection of countries with lax banking
regulations), but not by any means limited to these institutions. There is an annual
list of unlicensed banks on the US
Treasury Department website which currently is fifteen pages in length.

Also, a person may send a wire transfer from country to country. Since this takes a
few days for the transfer to "clear" and be available to withdraw, the other person
may still be able to withdraw the money from the other bank. A new teller or
corrupt officer may approve the withdrawal since it is in pending status which then
the other person cancels the wire transfer and the bank institution takes a monetary
28
loss.

29
* Uninsured deposits
A bank soliciting public deposits may 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, the unlicensed "Chase Trust Bank" of Washington D.C. appeared in 2002,
bearing no affiliation to its seemingly apparent namesake; the real Chase Manhattan
Bank is based in New York. Accounting fraud has also been used to conceal other
theft- taking place within a company.

* Forged and fraudulent documents

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 someone who
wishes to conceal the minor detail that the bank's money has in fact been stolen
and is now gone.

* Identity theft
Dishonest bank personnel have been known to disclose depositors' personal
information for use in theft of identity frauds. The perpetrators then use the
information to obtain identity cards and credit cards using the victim's name and
personal information.

* Demand draft fraud

One or more dishonest bank employees usually do demand draft fraud. They
remove few Demand draft leaves or Demand draft books from Stock and Write
them like a regular Demand draft. Since they are insiders, they know the coding,
punching of a demand draft. These Demand drafts will be issued payable at distant
town/city without debiting an account. Then it will be cashed at the payable
branch. For the paying branch it is just another Demand draft. This kind of fraud
will be discovered only when the head office does the branch-wise reconciliation,
which normally will take 6 months. By that time the money is unrecoverable.

30
* Forgery and altered cheques
Fraudsters 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 cheques,
simple altering can change $100.00 into $100,000.00, although transactions of this
value are subject to investigation as a precaution to prevent fraud as policy.

Instead of tampering with a real cheque, fraudsters may alternatively attempt to

forge a depositor's signature on a blank cheque or even print their own cheques
drawn on accounts owned by others, non-existent accounts, etc. They would
subsequently cash the fraudulent cheque through another bank and withdraw the
money before the banks realize that the cheque was a fraud.

* Accounting fraud
In order to hide serious financial problems, some businesses have been known to
use fraudulent bookkeeping to overstate sales and income, inflate the worth of the
company's assets or state a profit when the company is operating at a loss. 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. Accounting fraud has also been used to conceal other theft-taking place
within a company.

* Phishing fraud and Internet fraud

Phishing operates by sending forged e-mail, impersonating an online bank, auction
or payment site; 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. The information thus stolen is then used in other frauds, such
as theft of identity or online auction fraud.

A number of malicious "Trojan horse" programs have also been used to snoop on
Internet users while online, capturing keystrokes or confidential data in order to
send it to outside sites. Fake websites can trick you into downloading computer
viruses that steal your personal information. Security messages are shown that tell
you that you have viruses and need to download new software, by doing this you
are tricked into downloading an actual virus.

31
* Empty ATM envelope deposits
A Criminal Overdraft can result due to the account holder making a worthless or
misrepresented deposit at an automated teller machine in order to obtain more cash
than present in the account or to prevent a check from being returned due to non-
sufficient funds.

* Fraudulent loan application

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. Accounting fraud to overstate profits in order
to make a risky loan appear to be a sound investment for the bank. Some
corporations have engaged in over-expansion, using borrowed money to finance
costly mergers and acquisitions and overstating assets, sales or income to appear
Solvent even after becoming seriously financially overextended.

* 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. Money laundering is the process by which large
amounts of illegally obtained money (from drug trafficking, terrorist activity or
other serious crimes) is given the appearance of having originated from a
legitimate source.
The operations work in various forms. 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. The ''
would then default on the loan. The securities, however, would still be worth their
full amount. The transaction served only to disguise the original source of the
funds.

Also there are many other areas where bank frauds take place and sometimes are
not categorized, they are as follows

32
* Stolen cheques

Some fraudsters obtain access to facilities handling large amounts of cheques, 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). A few cheques go missing; accounts are then opened under fraudulent
names and the cheques (often tampered or altered in some way) deposited so that
the money can then be withdrawn by thieves. Stolen blank cheque books are also
of value to forgers who then sign as if they were the depositor.

* Credit card fraud

Credit card fraud is widespread as a means of stealing from banks, merchants and
clients. A credit card is made of three plastic sheet of polyvinyl chloride. The
central sheet of the card is known as the core stock. These cards are of a particular
size and many data are embossed over it. But credit cards fraud manifest in a
number of ways. They are:

1. Genuine cards are manipulated

2. Genuine cards are altered
3. Counter fit cards are created
4. Fraudulent telemarketing is done with credit cards.
5. Genuine cards are obtained on fraudulent applications in the
names/addresses of other persons and used.

It is feared that with the expansion of E-Commerce, M-Commerce and Internet

facilities being available on massive scale the fraudulent fund freaking via credit
cards will increase tremendously.

i) 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. The amount of the cheque is credited to the card
account by the bank as soon as the payment is made, even though the cheque has
not yet cleared. Before the bad cheque is discovered, the perpetrator goes on a
spending spree or obtains cash advances until the newly-"raised" available limit on
the card is reached. The original cheque then bounces, but by then it is already too
late.

33
ii) Stolen payment cards:

Often, 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; 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.

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.
The use of a four digit Personal Identity Number (PIN) instead of a signature helps
to prevent this type of fraud.

iii) Duplication or skimming of card information:

This takes a number of forms, 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.

Some thieves have surreptitiously added equipment to publicly accessible

automatic teller machines; 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. 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.

* Forged currency notes

Paper currency is the usual mode of exchange of money at the personal level,
though in business, cheques and drafts are also used considerably. Bank note has
been defined in Section 489A.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. 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. More over these notes have security
threads, watermarks. But the majority of the population does not know these
things. Forged currency notes are in full circulation and it’s very difficult to catch
hold of such forgers as once such notes are circulated it’s very difficult to track its
34
origin

35
* Computer fraud

Computerization has brought advantages of efficiency, speed and economy in all

spheres of life. It is a very powerful tool and provides opportunities of efficiency
and speed to everybody using it. Further, the vast increase in the memory (whether
RAM or storage) and processing speeds as well as availability of wide range of
software, particularly Internet and web-based applications i.e. connectivity, have
made them pervade all aspects of our lives. This has also brought large economy of
scale particularly in our economic environment and we are becoming more and
more dependent on computers and their networks for the services such systems
deliver.

Frauds committed using computers vary from complex financial frauds where
large amounts are illegally transferred between accounts by sophisticated hackers,
to the simpler frauds where computer is only a tool that a criminal uses to commit
a crime.

It also provides ample opportunities for their misuse particularly for economic or
financial gains. This is as computers networks can also be used to commit crimes
from geographically far places. Such computer frauds are known by various names
such as cybercrimes or e-crimes and we can describe them as an act involving
computer equipment, software or data that results in an unauthorized financial
advantage. Worldwide frauds in computerized environment cause losses running
into very large sums. Although in India, frauds committed so far have not revealed
any extensive manipulation of computer systems, it is no doubt a potentially high-
risk area, which should be addressed carefully and in timely manner. According to
a recent survey, companies in India have not addressed security issues
appropriately.

1) Manipulation:

In an ideal situation, where information systems have all the necessary controls,
which are properly integrated with other manual controls and maintained, there
will generally be no cause of worry. It is however, not so. Not only, most system
controls are not perfect, people also try to manipulate systems for variety of
motives from games playing, ego peer pressure, and hatred for the organization,
emotional maladjustment, blackmail and economic gains. Such people could be
insiders, outsiders as well as vendors, competitors in fact any one.

Computer frauds gain their criticality as they are easy to commit, difficult to detect
and even harder to prove. The most important type of such frauds is committing
36
the fraud by manipulation of input, output or throughput of a computer system.

37
 a) Input Manipulation:

In input manipulation, input data such as deposit amounts in ledgers, limits in

accounts or face value of cheques are changed.

b) Output manipulation:

Output manipulation is achieved by affecting the output of the system, such as use
of stolen or falsified cards in ATM machines.

c) Throughput manipulation:

Throughput manipulation could be by rounding off sums credited to different

accounts and siphoning of the rounded digits to another account. No system is
foolproof and fraudulent transfers can occur in even highly automated and secure
funds transfer systems.

2) Unauthorized use:

Other types of such frauds or crimes could be unauthorized access to computers by

hacking into systems or stealing passwords, deliberate damage caused to computer
data or programs, computer forgery (changing of data or images stored in
computers) and un-authorized reproduction / modification of computer programs.

3) Awareness:

Other important causes of such frauds are lack of employee awareness, poor
implementation of security policies and segregation of duties, vendor products with
weak security controls, outsourced service providers and hackers (many as young
as school students). Computer frauds in such cases are generally for economic
benefit to the fraudster and corresponding loss to the organization

Other sources of computer crimes are terrorists, organized criminals and groups
hating the organization.

38
Bank Frauds
Losses sustained by banks as a result of frauds exceed the losses due to robbery,
dacoit, burglary and theft all put together. Unauthorized credits facilitate and
extended for illegal gratification such as cash credit allowed against pledge of
goods, hypothecation of goods against bills or against book debt. Common modus
operandi are pledging of surprising goods, inflating the value of goods,
hypothecating goods to more than one banks, fraudulent removal of goods with the
knowledge and connivance of or negligence of banks staff. Pledging of goods
belonging to a third party. Goods hypothecated to a bank are found to contain
obsolete stocks packed in between good stocks and cases of shortage in weight are
uncommon.

Frauds in deposit accounts take place by opening of bogus accounts, forging

signatures of introducers and Collecting through Such accounts stolen or forged
cheques or bank drafts. Frauds are also committed in the area of granting overdraft
facility in the current accounts of customers. A large number of frauds have been
committed through bank drafts, mails transfer and telegraphic transfers.

An analysis made of cases brings out broadly, the under mentioned four major
elements responsible for commission of frauds in banks.
1. Active involvement of the Staff-both supervisory and clerical either independent
of external elements or in connivance with outsiders.
2. Failure on the part of the banks staff to follow meticulously laid down
instruction and guidelines.
3. External elements perpetrating frauds on banks by forgeries or manipulation of
cheques, drafts and other instruments.

There has been a growing collusion between businessmen, top banks executives,
civil servants and politicians in power to defraud the banks, by getting the rules
bent, regulation flouted and banking norms thrown to the winds.

In the present day, Global Scenario Banking System has acquired new dimensions
in the last four decades. Indian Banking System has several outstanding
achievements to its credit. Today, the banking system has entered into competitive
market in areas covering resources mobilization, human resource development,
customer services and credit management as well. Indian banks today are at cross
roads. The liberalization in economic policies introduced from 1991 onwards, has
brought about a remarkable change in the context under which nationalized public
sector banks were operating. Banks today have to face severe competition and
39
simultaneously they also have to face severe competition and simultaneously they
also have to face the challenges of technology. There is always the challenge of
crime and frauds against the banks.

It is also an accepted phenomenon that a good banking system should have a fraud
free culture and an in-house built legal mechanism for providing remedies.
With the rising banking business, frauds in banks are also increasing and fraudsters
are becoming more and more sophisticated and ingenious. There are various types
of frauds and frauds-prone area in different types of accounts in banking business.

A bank fraud is a deliberate act of Omission or Commission by any person carried

out in course of banking transaction or in the books of accounts, resulting in
Wrongful gain to any person for to any temporary period or otherwise, with or
without any monetary loss to banks.

The human resource aspect of the banks and how the work culture was dominated
by rise of the union leading to increasing lack of discipline and also creating an
environment, which would facilities frauds. Equally important is his analysis of the
psychology of the frauds and also his analysis of various theories of frauds. He
rightly emphasizes the need for the forensic auditing. It is said that a good doctor is
the one who is able to analyze from the Symptom of the disease, the root causes of
the disease and tackle the root cause.

Essential elements of frauds

The four essential elements of frauds that stand out clearly are as follows:
1. There must be representation or assertion
2. It must relate to a fact
3. It must be with the knowledge that it is false or without belief in its truth
4. It must induce another to act upon the assertion in question or to do or not to do
certain act.

40
 SECURITY IN BANKING SYSTEM
Security implies sense of safety and of freedom from danger or anxiety. When a
banker takes a collateral security, say in the form of gold or a title deed, against the
money lent by him, he has a sense of safety and of freedom from anxiety about the
possible non-payment of the loan by the borrower. These should be communicated
to all strata of the organization through appropriate means. Before staff managers
should analyze current practices. Security procedure should be stated explicitly and
agreed upon by each user in the specific environment. Such practices ensure
information security and enhance availability. Bank security is essentially a
defense against unforced attacks by thieves, dacoits and burglars.

Physical security measure concept:

A large part of banks security depends on social security measures. Physical
security measures can be defined as those specific and special protective or
defensive measures adopted to deter, detect, delay, defend and defeat or to perform
any one or more of these functions against culpable acts, both covert and
acclamations natural events. The protective or defensive, measures adopted involve
construction, installation and deployment of structures, equipment and persons
respectively.

The following are few guidelines to check malpractices:

1. To rotate the cash work within the staff.

2. One person should not continue on the same seat for more than two months.
3. The Cashier should not write daybook where another person is available to
the job.
4. No cash withdrawal should be allowed within passbook in case of
withdrawal by pay order.

41
 RBI GUIDELINES REGARDING FRAUDS

The RBI, being the central bank and an overall regulator of the Indian banking
industry, has laid down in detail the policy guidelines, and procedures to follow for
detection, investigation, taking legal action; as well as, prevention and reporting of
various types of bank frauds. It is a well-known fact, that in a large majority of
fraud cases, banks do not follow the guidelines prescribed by the central bank. As
part of their routine, the central bank takes various pro-active steps to control
frauds in banks. For example, after the RBI learns of the fraud cases, they examine
the case in detail, and advise the concerned bank to report the case to the Central
Bureau of Investigation, police, or Serious Fraud Investigation Office (SFIO).
Also, bank should take prompt action to recover the amount involved from the
fraudster. The RBI also issued several notifications and circulars sensitizing banks
about common types of fraud examples, fraud prone areas, and issued caution
notices against the repeat offenders. As remarked by E&Y (2010), “The evolving
fraud landscape around banking and the increase in fraud-related losses requires
automated detection systems and robust fraud defense processes.”

Overview of magnitude of frauds in this industry

According to Ernst & Young Report 2012, “Different types of frauds caused Rs.
6,600 crore loss to the Indian economy in 2011-12, and banks were the most
common victims in swindling cases; insider enabled fraud accounted for 61% of
fraud cases.” However, Soni and Soni (2013) concluded, “Cyber fraud in the
banking industry has emerged as a big problem and a cause of worry for this
sector.” Similarly, another survey conducted by Deloitte (2012) shows that “banks
have witnessed a rise in the number of fraud incidents in the last one year, and the
trend is likely to continue in the near future.” The Deloitte India Banking Fraud
Survey Report Edition II (2015) added, “Number of frauds in banking sector has
increased by more than 10% over the last two years. Banks witnessed rise in level
of sophistication with which frauds were executed.” It is universally accepted that
continued prevalence of frauds will have long- term bad consequences for banks,
customers, investors, government and the economy in general.

The year-wise details, beginning from 2000-01 to 2013-14, regarding the number
and amount of frauds reported by the Indian banking sector to the RBI, are shown
in Table 1. The following broad generalizations can be made. During the last six
years, from 2000-01 to 2005-06, the number of fraud cases has shown a constantly
rising
42
trend. For example, in 2000-01 there were 1858 cases of frauds, which
substantially jumped to 2658 fraud cases in 2005-06. However, in 2006-07 and
2007-08, the number of fraud cases declined sharply from 2568 to 1385,
respectively. In fact, the amount involved in fraud cases has also increased very
sharply from the lowest level of Rs. 374.97 crore during 2002-03 to the highest
level of Rs. 1134.39 crore during 2005-06. The year 2007-08 was an exceptional
year in which the amount of loss caused due to fraud declined to Rs. 396.86 crore.
In sharp contrast to this, year 2005- 06 was also a very significant year for the
banking industry, since this year witnessed the highest ever fraud loss of Rs.
1134.39 crore. Keeping in view the loss of Rs.
451.04 crore in 2004-05, the loss of Rs. 1134.39 crore in 2005-06, works out to
about
2.5 times the loss of previous year. Moreover, the scenario of number of frauds and
amount involved has significantly changed from 2008-09 to 2013-14. For example,
24,791 cases of frauds were reported in 2009-10, which showed a constant trend of
decline till 2012-13. Number of fraud cases reported was 19,827 in 2010-11, which
declined to 14,735 cases in 2011-12, and 13,293 cases in 2012-13 (a decline of
46.37%), respectively. As against this, the trend has reversed when we have a look
at the amount of loss suffered by banks during the same period. For instance, the
amount of loss suffered has increased very sharply from Rs. 2037.81 crore in 2009-
10 to Rs. 8646 crore in 2012-13, an increase of 324.27%. As Pai and Venkatesh
(2014) reported, “As on March 31, 2014 banks reported total loss of Rs. 169,190
crore from 29,910 cases. In 2012-13, Rs. 13,293 crore of fraud was detected from
8646 cases.” According to Ghosh (2015), “During Apr.-Dec. 2014, PSBs suffered
losses of Rs. 11,022 crore from 2100 fraud cases involving Rs. one lakh or more.
During same period, 46% more amount was lost due to frauds compared to last
full- year.”

43
DATA ANALYSIS AND INTERPRETATION

44
1. Age wise distribution

Age Below 25 25 - 50 50 above

No. 18 12 5
Percentage 52.9% 35.3% 11.8%

Interpretation: Chart provides age wise distribution of the sample showing that
data is more from the age bracket of 25 and below i.e. 52%. The chart also shows
that there were almost all the age groups covered in the survey.

45
2. How often do you use banking facilities?

Daily Once a week Not so often Never

Number 9 12 12 2

Percentage 23.5% 35.3% 35.3% 5.9%

Interpretation: In the survey conducted it shows that most of the people

(70.6%) use banking activities regularly. This data is beneficial for us to analyze
how the use of different bank facilities and frequency of the use can trigger frauds
to be conducted through it.

46
3. Do you have any knowledge about bank frauds?

Yes No
No. 32 3

Percentage 94.1% 5.7%

Interpretation: The chart shows that almost 94 percent of the people from the
sample size know about banking frauds and have some or the other knowledge
about bank frauds and measures. 94 percent is a good number considering that
almost everyone knows about frauds and are aware of it.

47
4. Awareness of the basic types of frauds

Types of Credit Card Online ATM Identity cheque None

frauds
No. out of 35 21 23 23 25 8 1
Percentage 61.8% 67.6% 67.6% 73.5% 23.5% 2.9%

Interpretation: The chart shows that there’s a great variety of frauds that people
are aware of specially Identity fraud, which is the most common type of frauds in
India. From the data almost 98 percent of the consumers of banks in the sample
takes know about or have knowledge about the listed common frauds this shows
the consumer though are sometimes careless when it comes to fraud prevention
they are aware of the frauds and have at least basic knowledge about the listed
frauds.

48
5. Do you think frauds have increased due to online technology?

Yes No Maybe
No. 11 10 14
Percentage 32.4% 29.4% 38.2%

Interpretation: Chart provides distribution in relation to the answers given for

the above question. 32% of the sample think that frauds have increased in banking
sector due to increase in technology where as 29% think that technology is good to
prevent frauds others are not sure if increasing technology can lead to frauds or no.

49
6. What kind of different banking activity do you use?

Type Online Credit ATM Cheque

No. out of 35 20 21 27 13
Percentage 58.8% 61.8% 79.4% 38.2%

Interpretation: It shows the different Facilities of a bank, which are used by the
consumers of the banks in the sample. This mainly is useful to interpret how the
usage frequency of the consumers of such facilities can lead to them being targeted
by fraudsters because as per study highest frauds take place in activities which
have the highest amount of volume and activity.

50
7. Have you ever been a victim of banking fraud?

Yes No
No. 5 30
Percentage 14.7% 35.3%

Interpretation: This is the chart which shows from the survey conducted almost
86% of people were not a prey to frauds but 14% had faced fraud in relation to
banking at least once. Out of 100% 14% is actually an alarming rate of people
falling prey to fraudulent practices in spite of them having knowledge of different
frauds and knowing ways to prevent them.

51
8. Do you take preventive measures to avoid frauds?

Yes No
No. 32 3
Percentage 94.1% 5.9%

Interpretation: The chart shows that almost 94% of the people in the sample
space take preventive measures and are precautious when it comes to their banking
transactions. Only about 6% are carefree and they leave it all on the bank.

52
9. What measures would you take if fraudulent transaction takes
place in your account?

Sr. No. 1 2 3 4 5 6
No. out of 35 31 23 19 16 10 5
Percentage 91.2% 68.6% 55.9% 47.1%% 29.4% 14.7%

1. Inform the bank

2. Change online banking password
3. Change card pins
4. Lock down your account
5. Inform the police
6. Just leave it on the bank

Interpretation: The chart shows high number of people will take different
measures and only 5% of them will just leave it on the bank. Most of the people
will take adequate defensive measures to limit their losses.

53
10. Ever been contacted by fraudster telesales? (Identity theft)

Yes No Maybe
No. 12 15 8
Percentage 35.3% 44.1% 20.6%

Interpretation: The chart shows that almost 35% of the source was targeted by
the fraudulent callers trying to act as their bank and gaining their information by
manipulating them in some or the other way. Other 44% were unaffected.

54
 FINDINGS, SUGGESTIONS & CONCLUSION

Findings

 Banking frauds in Indian are growing as a very fast rate

 Even though the population of India is not fully literate people do have
knowledge about banking frauds.
 Many of the people now in modern times use banking facilities on almost on
a daily basis which shows us that the target audience for a fraudster is
massive.
 As we all know that technology has actually made our banking systems safer
many people are of the view that online technology have made their data
even more easily accessible and vulnerable.
 Many of the people mostly do not care when it comes to taking preventive
measures.
 People tend to take measures only after they have been affected in some or
the other way.

Suggestions

 Never give your account number to people you do not know, especially on
telephone.
 Never give out financial or other personal information such as bank account
or credit card numbers unless you are sure that the company is legitimate
and the information is necessary for the transaction.
 Never judge a website by its appearance. Anyone can create a flashy
website. Just because it looks professional does not mean a professional runs
it.
 Do not write your credit card number on the cheque.
 Don’t leave blank spaces on the payee and amount lines.
 Keep changing your e-mail password frequently because it can be hacked.
 Limit the amount of personal information on your cheque. For e.g. driver’s
license, telephone numbers. A criminal can use this information by applying
for credit card or loan, opening a new account.
 Don’t send any personal information to any e-mail ID this can lead to
phishing fraud.
55
Conclusion
The Indian Banking Industry has undergone tremendous growth since
nationalization of 14 banks in the year 1969. There has an almost eight times
increase in the bank branches from about 8000 during 1969 to note than 60,000
belonging to 289 commercial banks, of which 66 banks are in private sector.

However, with the spread of banking and banks, frauds have been on a constant
increase. It could be a natural corollary to increase in the number of customers who
are using banks these days. In the year 2000 alone we have lost Rs.673 crores in as
many as 3,072 number of fraud cases. These are only reported figures. There were
nearly 65,800 bank branches of a total of 295 commercial banks in India as on June
30, 2001 reporting a total of nearly 3,072 bank fraud cases.

The most important feature of Bank frauds is that ordinarily they do not involve an
individual direct victim. They are punishable because they harm the whole society.
It is clear that money involved in Bank belongs to public.

There must be certain preventive and curative measures to control frauds. The
higher authority of bank must follow strict rules against such fraudsters. The bank
to overcome such frauds must adapt the various new technologies.

Thus, a fraud is the game of two, the rule makers and the rule breakers. Fraud is a
phenomenon that cannot be eliminated but can be managed.

56
 BIBLIOGRAPHY

SITES REFERRED

https://www.rbi.org.in
https://www.icicibank.com/Personal-Banking
www.legalservicesindia.com
www.indianexpress.com

BOOKS REFERRED

1. Fence the Fraud (A practical guide to prevent bank frauds)

Author - KANWAR MEHTA

2. Principles of Banking
Author – INDIAN INSTITUTE OF BANKING & FINANCE

57