Bank Frauds: Rise in scams hit capital position of banks

A spate of frauds has hit the banking sector in recent times which could significantly deplete the capital position of the lenders as they are mandated to set aside capital as provision for the entire fraud amount.

In the last month, two cases of fraud have come up. Firstly, that of IVRCL, where the company’s MD E Sudhir Reddy and Joint MD R Balarami Reddy was booked by the Central Bureau of Investigation for the alleged fraud of Rs 4,800 crore against a consortium of banks. Another was State-owned Punjab & Sind Bank which declared the account of Sintex Industries which has an exposure of Rs 294 crore as fraud.

Earlier this month, Delhi-based Shakti Bhog Foods Ltd was booked for an alleged fraud of Rs 3,269 crore on a consortium of 10 banks led by the State Bank of India (SBI).

According to the reports, in the October to December 2020 quarter, banks have reported fraud of at least Rs 3,350 crores. This is according to the data reports of eight non-performing accounts of two companies of Pratibha Group, IL&FS Financial Services, Sintex Industries, SEL Manufacturing of four banks - Punjab & Sind Bank, Indian Bank, Karnataka Bank, and Punjab National Bank.

In 2019-20, the Indian banking sector saw a 159% jump in dubious transactions to Rs 1.86 lakh crore, the Reserve Bank of India’s data showed. The data, which pertains to frauds that are above Rs 1 lakh, shows the number of frauds grew by 28% to 8707 in FY20 from 6799 in the previous financial year. There was a concentration on high value frauds with top 50 credit accounts contributing 76% of the frauds reported in 2019-20.

Data for the first six month of 2019-20, which was compiled by some of the public sector banks, showed that State Bank of India – the largest lender of the country with about 25% market share in loans – reported 2939 incidents of fraud valued at Rs 25,417 crore.

SBI was followed by Punjab National Bank (Rs 10,822 crore in 225 cases), Bank of Baroda (Rs 8,273 in 180 cases) and Allahabad Bank (Rs 6,509 crore in 724 cases).

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