{"id":53644,"date":"2019-11-01T17:59:30","date_gmt":"2019-11-01T12:29:30","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?page_id=53644"},"modified":"2019-11-01T17:59:38","modified_gmt":"2019-11-01T12:29:38","slug":"answered-what-are-various-reasons-for-the-rise-in-cases-of-bank-frauds-in-last-decade-in-india-also-discuss-the-need-of-bringing-reforms-in-banking-governance-and-impact-of-such-frauds","status":"publish","type":"page","link":"https:\/\/forumias.com\/blog\/answered-what-are-various-reasons-for-the-rise-in-cases-of-bank-frauds-in-last-decade-in-india-also-discuss-the-need-of-bringing-reforms-in-banking-governance-and-impact-of-such-frauds\/","title":{"rendered":"[Answered] What are various reasons for the rise in cases of bank frauds in last decade in India? Also discuss the need of bringing reforms in banking governance and impact of such frauds."},"content":{"rendered":"\n
Demand of the question<\/strong>
Introduction. <\/strong>Contextual Introduction.
Body. <\/strong>Give some examples of bank frauds and related data. Various reasons and Impact of bank frauds. Discuss some measures.
Conclusion. <\/strong>Way forward. <\/td><\/tr><\/tbody><\/table>\n\n\n\n

In the present-day economic system, banks play a very important role in the economic development of the country. Nowadays, banks have diversified their activities and are getting into new schemes and services that create opportunities for financial inclusion. As the banking sector is flourishing, it is getting plagued by some operational problems such as frauds etc. <\/p>\n\n\n\n

Bank frauds and\nrise in last decade:<\/strong><\/p>\n\n\n\n

  1. Financial Stability Report of the Reserve Bank\nof India (RBI) shows, that the Indian banking system reported about 6,500\ninstances of fraud involving over \u20b930,000 crore in 2017-18.<\/li>
  2. Central Vigilance Commission (CVC) analysed the\ntop 100 banking frauds in different sectors and has also suggested some\nmeasures that will help avoid such unethical activities in the future.<\/li>
  3. Banking frauds attracted national attention when\nthe Punjab National Bank reported earlier this year that it had been defrauded\nby companies related to jeweller Nirav Modi and Mehul Choksi.<\/li>
  4. In 2014, Vijay Mallya was also declared a wilful\ndefaulter by Union Bank of India, following which other banks such as SBI and\nPNB followed suit.<\/li><\/ol>\n\n\n\n

    Various reason\nbehind these frauds:<\/strong><\/p>\n\n\n\n

    1. Poor banking governance: <\/strong>Most frauds show\nthat banks did not observe due diligence, both before and after disbursing\nloans. Poor level of checks and balances in the banking system is one of the\nreason.<\/li>
    2. Poor monitoring: <\/strong>Lack of technology and\nfraud monitoring agencies to detect frauds makes the problem more complex. There\nis an absence of an effective mechanism to monitor the credit flow. Flawed\nrisk-mitigation design, which creates an excessive focus on credit or market\nrisks, but focuses less on operational risks also leading to more breaches.<\/li>
    3. Technological backwardness: <\/strong>Excessive\ndependence on manual supervision, at both external and internal levels makes it\nimpossible to manually control and supervise the sheer volume of transactions.<\/li>
    4. Immoral behaviour: <\/strong>The disintegrating\nmoral fibre of Indian businessmen, bankers and other white-collar\nprofessionals, nepotism in internal committees of banks, unnecessary political\ninterventions lead to increased frauds.<\/li>
    5. Political interference: <\/strong>The political\npulls and pressures on investigating agencies, and long-drawn processes of\nlegal system act less as a deterrent.<\/li><\/ol>\n\n\n\n

      Impact of such\nfrauds: <\/strong><\/p>\n\n\n\n

      1. This unhealthy development of rising\nfraudulent activities afflicting the banking sector impinges their credibility\nadversely. <\/li>
      2. Frauds add to Non-performing Assets\nand lead to loss of banks and economy. The Gross NPAs to Gross Advances Ratio\nhas shown a rising trend over the years<\/li>
      3. Frauds and fraudulent activities\nwreak severe financial dilemmas on banks and their clients, as well as cause a\nsignificant reduction in the quantum of money accessible for economic\ndevelopment. <\/li>
      4. Frauds have a significant impact on\nprofitability of the Indian banking sector. Profitability of banks is on a\nsteady decline which needs to be an eye opener as it poses a threat to the\neconomy.<\/li><\/ol>\n\n\n\n

        Need of\ngovernance reforms and other measures:<\/strong><\/p>\n\n\n\n

        1. Banking\ngovernance need an overhaul with proper checks and balance in places. Indian\nbanks need significant improvements in operation and governance standards to\nwork in an effective manner, by constantly working on the loopholes so that the\nbanking sector can contribute more to the growth of the economy.<\/li>
        2. Accountability need to be\nestablished among the bank managers and other administrators.<\/li>
        3. While it may not probable for banks\nto conduct their operations in a zero fraud milieu, proactive measures, such as\nconduct of risk assessment of policies and procedures can aid banks to\ncircumvent their risk of contingent losses resulting from frauds. <\/li>
        4. The data analysis technology can be\nleveraged by banks to detect frauds at the incipient stage itself and reduce\ntheir loss causing impact significantly.<\/li>
        5. Law enforcement agencies should work in such a\nway that they don\u2019t end up creating an environment of fear, affecting the flow\nof credit to productive sectors.<\/li>
        6. Apart from improving capabilities in the banking\nsystem, accountability of third-party service providers such as auditors and\nlawyers should also be fixed.<\/li>
        7. Assessment of working capital limit should be\ndone before the flow of credit.<\/li>
        8. Awareness should be created about loopholes,\nconsequences of bypassing procedural aspects and benchmarks should be provided\nfor evaluating genuineness of various essential documents.<\/li>
        9. The investigation should be done to find out the\ntrail of diversion of funds and whether any money has been remitted abroad.<\/li>
        10. The Banks should pay the required attention to\nthe area of internal control system and the fraud prevention measures to ensure\ncompliance of instructions issued by them from time to time.<\/li><\/ol>\n\n\n\n

          It is evident that post liberalization era has showered new colours of growth upon the Indian banking sector but simultaneously it has also posed some serious challenges. One of them being rise in frauds and NPAs. Thus proper measures should be taken beforehand to stop such frauds in future and prevent crisis in banks.<\/p>\n","protected":false},"excerpt":{"rendered":"

          Demand of the question Introduction. Contextual Introduction. Body. Give some examples of bank frauds and related data. Various reasons and Impact of bank frauds. Discuss some measures. Conclusion. Way forward. In the present-day economic system, banks play a very important role in the economic development of the country. Nowadays, banks have diversified their activities and… Continue reading [Answered] What are various reasons for the rise in cases of bank frauds in last decade in India? Also discuss the need of bringing reforms in banking governance and impact of such frauds.<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49132,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-53644","page","type-page","status-publish","has-post-thumbnail","hentry","entry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/53644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=53644"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/53644\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49132"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=53644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}