Banks take 24 months on average to detect frauds: RBI

The Reserve Bank of India, in its annual report for FY20, said banks and financial institutions took average 24 months in detecting frauds during the financial year 2019-2020. In large frauds, Rs 100 crore and above, the average lag was 63 months.

"While the frauds framework focuses on prevention, early detection and prompt reporting, the average lag in detection of frauds remains long," the apex bank said in its report.

"The sanction of the credit facility in many of these accounts was much older. 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 account for delay in detection of frauds," the RBI report said.

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The central bank said the EWS mechanism is getting revamped alongside strengthening of the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny.

It also revealed that the total cases of frauds (involving Rs 1 lakh and above) reported by banks or financial institutions increased by 28 per cent by volume and 159 per cent by value during 2019-20. The date of occurrence of these frauds, however, was spread over several previous years.

The RBI observed that the 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 per cent of the total amount reported as frauds during 2019-20," the RBI added.

Incidents relating to other areas of banking -- off-balance sheet and forex transactions -- declined in 2019-20 compared to the previous year, it added.

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