Bank loan frauds jump three times to Rs 1.82 lakh crore in 2019-20

Bank loan frauds have seen sharp jump in 2019-20 as the latest annual report (2019-20) of the Reserve Bank of India (RBI) shows that loan frauds zoomed 3 times in 2019-20 to Rs 1.82 lakh crore compared to Rs 65,500 crore in the previous year. Their share in the total bank frauds also jumped from 90% in 2018-19 to 98% in 2019-20.

The RBI’s latest annual report also shows a 2.6 times jump in the value of bank frauds to Rs 1.85 lakh crore during the year compared with Rs 71,543 crore a year ago.

As expected the state-owned banks are the biggest target of loan fraudsters as they accounted for 80% of the total amount involved in those frauds. In 2019-20, government-owned banks reported 4,413 cases of frauds involving Rs 1.48 lakh crore. In the year before, government banks had reported 3,568 frauds involving Rs 63,283 crore.

While private sector banks continue to perform better in terms of checking such frauds, their share continues to grow.  They reported 3,022 cases of frauds involving Rs 34,211 crore in 2019-20, showing a five times jump in terms of amount involved in these frauds. Private bank’s share in terms of amount involved in frauds has grown from 9.4% in 2018-19 to 18.4% in 2019-20.

An analysis of the fraud cases by RBI says: Frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value. There was a concentration of large value frauds, with the top fifty credit-related frauds constituting 76% of the total amount reported as frauds during 2019-20.”

The number of bank loan frauds also saw a growth of 28% from 3,600 in 2018-19 to 4,600 in 2019-20. In 2017-18, banks reported a total 2,525 bank loan frauds involving Rs 22,550 crore.

Apart from sharp increase in the large bank loan frauds, what is more worrying for the whole banking system is its continued failure in early detection of banking frauds. The RBI annual report says that while the frauds framework focuses on prevention, early detection and prompt reporting, the average lag in detection of frauds remains long. “The average lag between the date of occurrence of frauds and their detection by banks/ FIs was 24 months during 2019-20. In large frauds of Rs 100 crore and more, however, the average lag was 63 months. The sanction of the credit facility in many of these accounts was much older,” further says the report.

In 2018-19, the average lag between the date of occurrence of frauds and their detection was 22 months and in large frauds of Rs 100 crore and more the average lag was 55 months.

The report cites weak implementation of Early Warning Signals (EWS) by banks, non-detection of EWS during internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports and lack of decision making in Joint Lenders’ meetings as the reasons for delay in detection of frauds.

Bank loan frauds in India