The Financial Stability Report warns that the frauds in Banks is on the high increase, and doubts that banks might be hiding some of the fraud cases.  RBI further adds that before a Corporate Account is declared as Fraud, obviously well before 2 or 3 years, they would normally get turned to NPA category.

The report further states, that during the last five years, the total volume of frauds rose 19.6 per cent ie., from 4,235 to 5,064 crores, thus bringing an increase in the loss figures to 72%.  The total loss now stands at Rs. 16,770 crores.  Out of this the advance portfolio has contributed 86 per cent during the review period 2016-17.    What are the reasons?

  1. Laxity in underwriting standards at banks is increasing day by day.
  2. Liberal cash flow projection at the proposal stage.
  3. Lack of monitoring of cash flow and profit.
  4. Over valuation of security.
  5. Gold Plating of projects.
  6. Diversion of funds.
  7. Double financing.
  8. Fall out in Credit Governance.

Also, the RBI report adds that drop in market conditions, recession, vulnerable situations observed at Industries level, macroeconomic risks on lending areas possibly can be grey areas to control but cannot be the attributes for a fraud.

Author: Admin Bankedge

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