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AN INVESTIGATION OF FRAUDS IN INDIAN BANKING SECTOR

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 Page Nos. 171-183

AN INVESTIGATION OF FRAUDS IN INDIAN BANKING SECTOR

Ms. Bhavna Sharma*

The fraud cases in Indian banks have been on the rise. Fraud is regarded as a danger to the
banks. The purpose of the study was to find out the various types of frauds occurred in the selected
public sector banks. The data were obtained through questionnaires filled from 105 bank staff of
National Capital Region (NCR) from three public sector banks, namely Oriental Bank of Commerce
(OBC), Punjab National Bank (PNB) and Union Bank of India (UBI) during December 2019 to
March 2020 and ANOVA technique was used to analyze the data. The results showed that there is a
significant difference in the respondents' viewpoint towards unsanctioned borrowings and fake
documents. It was also found that major types of frauds occurred in the selected public sector banks
were money laundering, manipulation of accounts, loan fraud, manipulation of vouchers and fake
documents. It is recommended that sound internal control mechanism must be set up as the
fraudsters are busy devising new methods and there must be surprise audits in the banks.
Keywords: Frauds, Manipulation of Accounts, Public Sector Banks, Fake documents.

INTRODUCTION internal checks are the main reasons for delay in

detection of frauds (Palepu, 2020). There were
Bank fraud means the utilization of
various frauds reported during April to June
deceitful intends to get something of significant
2020. 47 fraud cases of ₹5,124.87 crore in Bank
worth from a money related foundation
of India, 33 cases of ₹3,885.26 crore in Canara
(Repousis, Lois, & Veli, 2019). The fraud cases
Bank , 60 cases of ₹2,842.94 crore in Bank of
in Indian banks have been on the rise. Fraud is
regarded as a danger to the banks. The Baroda , 45 cases of ₹1,469.79 crore in Indian
Bank, 37 cases of ₹1,207.65 crore in Indian
government must set up strong mechanism to
Overseas Bank, 9 cases of ₹1,140.37 crore in
prevent frauds (Sule, Ibrahim, & Sani, 2019).
Bank of Maharashtra, 130 cases of ₹831.35
The increasing fraud rate in banks is a genuine
crore in UCO Bank, 149 cases of ₹655.84 crore
danger to their security (Sharma & Singh,
in Central Bank of India, 18 cases of ₹163.3
2020). Frauds are the main cause of losses to the
crore in Punjab and Sind Bank and 49 cases of
banks (Sharma, Singh, & Dhas, 2020). The
₹46.52 crore in Union Bank of India
banks must assure that they do their
(www.livemint.com, 2020).
responsibilities which is without fraudulent
practices, if the banks have to gain the Table-1: Fraud Cases Reported in Banks
confidence of clients and build a good image.
Banks 2017-18 2018-19 2019-20
Frauds reduces the assets of banks and increases
their liabilities. Frauds cause lack of trust among State
the public and lead to failure of bank (Gitau & Owned 38260.87 63283.00 148400.00
Samson, 2016). Ignorance of early warning Banks
signals by banks, unsatisfying audit reports, Private
non-cooperation of borrowers during audit and 2478.25 6742.00 34211.00
Banks
non-detection of early warning signals during

*Research Scholar, Department of Business Administration, Chaudhary Devi Lal University, Sirsa, Haryana
178
Foreign Owho (2005) outlined, theft and embezzlement,
256.09 955.00 972.00
Banks forgeries, unauthorized lending and
manipulation of vouchers as main forms of
Source: RBI Annual Report 2019-20
frauds. Barker et al. (2008) identified main types
As per a report of RBI, there were 6,799 of fraud i.e. fake cards, phishing and skimming.
frauds involving ₹71,543 crore as of March Idowu (2009) discussed different kinds of fraud
2019, and it increased to 8,707 cases of in Nigerian banks; advance fee fraud, forged
₹1,85,644 crore. More frauds were reported in cheques, cheque kitting, etc. Gottschalk (2010)
public sector banks (4,413 cases of ₹1,48,400 grouped money related wrongdoing into four
crore) as compared to private banks (3,066 classifications, i.e. defilement, extortion,
frauds of ₹34,211 crore) (Mathew, 2020). robbery and control. Kristo (2011) investigated
Table-2: Types of Bank Frauds various categories of frauds like identity theft,
electronic fraud, plastic card frauds, etc. Gandhi
Type of frauds 2018-19 2019-20 (2014) pointed ineffective recovery mechanism,
Advances 64,548 182,051 ineffective supervision post credit disbursal and
absence of vigorous credit evaluation system as
Off Balance Sheet 5,538 2,445 the main reasons of growing non-performing
Forex 695 54 assets. Olaoye (2014) identified management
fraud, employee fraud and outsider fraud as
Card/Internet 71 195 main types of frauds. Agrawal (2016) identified
Deposits 148 616 phishing, credit card fraud, identity theft as the
main kinds of frauds. Clementia (2016)
Cash 56 63 identified forged customer‘s signature, forged
Cheques 34 39 documents and fraudulent loans as main types of
bank frauds. Repousis (2019) identified main
Clearing Accounts 209 7 categories of bank frauds i.e. loan fraud, identity
Others 244 174 theft, electronic fund transfer fraud, cheque
fraud etc. Sharma (2020) found main challenges
Total 71,543 185,644
faced by banks in fraud detection which are non-
Source: RBI Annual Report 2019-20 sharing of information with others, lack of
customer awareness and non-submission of
There were various types of frauds
reports by the customers. Sharma (2020)
occurred in the last few years (Table-2). Some
discovered fake documents, money laundering
of them are advances frauds, internet frauds,
forged cheques, manipulation of accounts as
cheque frauds, etc. Even various fraud cases
major types of frauds.
have been reported in last three years like
Rotomac Global Private Limited fraud case in Research Objectives
Bank of India, Bhushan Power and Steel fraud The present study is conducted to find
case in Punjab National Bank, R P Info Systems the various types of frauds occurred in the
fraud case in Canara Bank, Kanishk Gold selected public sector banks.
Private Limited Case in State Bank of India,
Sterling Biotech fraud case in Andhra Bank, Research Hypotheses
Ram Dev International Rice Mill fraud in SBI To achieve the objectives and validate
and many more. The purpose of the study is to the results of the study, following research
find out the various types of frauds occurred in hypothesis was formulated:
the selected public sector banks.
H01: H01: There is no significant difference in
Review of Related Literature the respondents' viewpoint towards various
Cahill et al (2002) identified forged categories of frauds in selected public sector
customer‘s signature and issuing loan without banks.
adequate collateral as the main types of frauds.

179
Ha1: There is a significant difference in the Female 43 41
respondents' viewpoint towards various types of
Experience Less than 10 48 45.
frauds in selected public sector banks.
7
Methodology
11-20 34 32.
The data were obtained from primary 38
source through questionnaires. First pilot study
was conducted. Questionnaires was sent to ten 21-30 14 13.
bank staff for content validity. After their 34
recommendations, questionnaire was finalized. Above 30 9 8.5
Questionnaires were distributed to 204 bank
Qualification Graduate 28 26.
staff, in NCR in three public sector banks,
67
namely Oriental Bank of Commerce (OBC),
Punjab National Bank (PNB) and Union Bank Post Graduate 45 42.
of India (UBI) during December 2019 to March 85
2020. Finally, out of the 204 questionnaires
Professional 32 30.
distributed, 105 were completed and returned
Qualifications 48
(response rate of 51 percent). The respondents
were selected on the basis of purposive/snowball Category Managers 41 39
sampling. They were asked to indicate their Officers 64 61
degree of agreement or disagreement with each
of the statements on a five-point Likert response Note: N=No. of Respondents
scale (Likert, 1932) that ranged from strongly Source: Primary survey
agree (scored as 5) to strongly disagree (scored
as 1). The collected data have been analyzed Results and Discussions
with the help of SPSS Version 25 and The frequency distribution of the
descriptive techniques and ANOVA technique respondent‘s viewpoint towards various types of
has been used to test the hypotheses and validate frauds in the selected public sector banks shows
the results of the study. that most of the respondents disagree/strongly
Reliability of the Scale disagree towards account opening fraud (N=52,
P=49.5), manipulation of vouchers (N=45,
Reliability of the instrument was P=42.8) , cheque fraud (N=51, P=48.5), card
checked by using Cronbach alpha coefficient skimming (N=63, P=60), fake customer's
and values are 0.839. Any value of 0.70 and signature (N=62, P=59) whereas they
above is a good measure of internal consistency agree/strongly agree towards loan fraud (N=46,
(Nunally, 1978). P=43.8), unsanctioned borrowings (N=48,
Sample Profile P=45.7), manipulation of accounts (N=53,
P=50.4), money laundering (N=69, P=65.7),
Table-3 shows the sample profile of the fake documents (N=47, P=44.7).
respondents. There were 62 males and 43
females. Majority of them had experience of less Table-4 shows the descriptive statistics
than 10 years were 48 (45.7 percent), were post- and ANOVA results of the types of frauds
graduates, 45 (42.85 percent). Out of the total occurred in the selected public sector banks. In
respondents, 41 were managers and 64 were PNB, money laundering (x=3.87, =0.97) is
officers. placed at the top, followed by manipulation of
accounts (x=3.07, =1.23) and loan fraud
Table-3: Sample Profile (x=2.93, =1.28), whereas money laundering
Demographic Characteristics Frequ % (x=3.67, =1.24) is placed at the top, followed
ency by fake documents (x=3.43, =1.13) and
unsanctioned borrowings (x=3.43, =1.13) in
Gender Male 62 59
OBC. However, money laundering (x=3.50,

180
 =1.22) is at the top, followed by manipulation viewpoint towards unsanctioned borrowings
of accounts (x=3.03, =1.24) and manipulation (p=0.004) and fake documents (p=0.001) at 5
of vouchers (x=2.93 =1.17) in case of UBI. As percent level of significance in the selected
a whole, money laundering (x=3.68, =1.15) is public sector banks, therefore the null
at the top, followed by manipulation of accounts hypothesis (H01) i.e. there is no significant
(x=3.12, =1.23), loan fraud (x=2.94, =1.25) difference in the respondents' viewpoint towards
and manipulation of vouchers (x=2.89, =1.21). various types of frauds in the selected public
Statistically, ANOVA results show that there is sector banks, is rejected.
a significant difference in the respondents'
Table-4: Descriptive Statistics & ANOVA Results
Statements N PNB OBC UBI Total ANOVA
x σ x σ x σ x σ F Sign.
Loan fraud 35 2.93 1.285 2.97 1.189 2.93 1.337 2.94 1.257 0.007 0.993
account opening 35 2.73 1.015 2.47 1.332 2.83 1.147 2.68 1.169 0.785 0.459
fraud
Unsanctioned 35 2.60 1.192 3.43 1.135 2.53 1.106 2.86 1.204 5.756 0.004*
borrowings
Manipulation of 35 3.07 1.230 3.27 1.258 3.03 1.245 3.12 1.235 0.309 0.735
accounts
Card skimming 35 2.23 1.278 2.10 1.242 2.43 1.135 2.26 1.214 0.568 0.569
Fake customer's 35 2.13 1.106 2.50 1.137 2.53 1.106 2.39 1.119 1.186 0.310
signature
Manipulation of 35 2.90 1.213 2.83 1.289 2.93 1.172 2.89 1.213 0.052 0.950
vouchers
Cheque fraud 35 2.47 1.252 2.67 1.373 2.90 1.185 2.68 1.270 0.872 0.422
Fake documents 35 2.40 1.163 3.43 1.132 2.53 1.106 2.79 1.213 7.360 0.001*
Money laundering 35 3.87 0.973 3.67 1.241 3.50 1.225 3.68 1.150 0.761 0.470
Note: N=No. of Respondents
Source: Primary survey
Conclusion and Recommendations Bank of India, Bhushan Power and Steel fraud
case in Punjab National Bank and R P Info
Banking sector is the backbone of our
Systems fraud case in Canara Bank.
economy. The fraud cases in Indian banks have
Manipulation of accounts was the main type of
been on the rise. Fraud is regarded as a danger
fraud being done by the fraudsters in cases like
to the banks. The government must set up strong
Kanishk Gold Private Limited Case in State
mechanism to prevent fraud. The results of the
Bank of India, Sterling Biotech fraud case in
study show that major types of frauds occurred
Andhra Bank and Ram Dev International Rice
were money laundering, manipulation of
Mill fraud in SBI. It is recommended that sound
accounts, loan fraud, manipulation of vouchers
internal control mechanism must be set up as the
and fake documents. Manipulation of accounts
fraudsters are busy devising new methods.
was the main type of fraud being done by the
There must be surprise audits in the banks. The
fraudsters in cases like Submission of fake
financial statements of the borrowers must be
documents was reported in fraud cases like
verified by the auditors. There must be strict
Rotomac Global Private Limited fraud case in

181
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