The Reserve Bank of India’s latest Report on Trend and Progress of Banking (2023–24) reveals a troubling development: bank frauds in India have jumped by 27.4%, reaching 18,461 cases in the first half of FY25 (April–September 2024), up from 14,480 cases the year before. Even more alarming is the eightfold increase in the amount involved—from Rs 2,623 crore in H1 FY24 to Rs 21,367 crore in H1 FY25.
This isn’t just a statistical spike—it’s a warning sign. Despite India’s strong banking fundamentals (with gross NPAs at just 2.5% and capital adequacy at 16.8%), rising digital fraud is threatening the system’s integrity. As UPI and digital payments grow—16.73 billion UPI transactions in December 2024 alone—fraud is rising in parallel.
Who’s Most Affected?
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Private sector banks, known for their tech-savviness, reported 67.1% of fraud cases in FY24, mainly from card and internet-related frauds, which accounted for 85.3% of cases and 44.7% of the total amount.
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Public sector banks (PSBs) suffered bigger financial hits, losing Rs 13,930 crore, or 75.3% of fraud value, mostly due to loan-related frauds.
Key Issues Behind the Rise
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Digital frauds—driven by phishing, vishing, and “mule” accounts—are growing faster than banks can respond.
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There’s a serious delay in fraud detection: 89.2% of fraud value in FY24 came from cases in previous years.
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Penalties doubled to Rs 86.1 crore in FY24, but fraud continues to thrive.
Why the Explosion?
India’s rapid digitisation has created more opportunities for fraudsters:
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80% of adults are now in the formal banking system.
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Monthly UPI transactions are rising by 8%.
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Social engineering scams trick users into revealing sensitive data.
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Mule accounts, often created with weak KYC checks, are used to launder stolen money.
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Microfinance and unsecured loans are high-risk areas—11% overdue, with 60% of borrowers holding multiple loans.
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Fake digital lending apps, posing as RBI-regulated entities, are making things worse.
The result: both reputation and financial stability are under threat.
What Needs to Be Done?
The RBI and banks must act fast on several fronts:
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Modernise Onboarding & Monitoring
Banks must upgrade their fraud detection with real-time, AI-powered tools that can catch suspicious activity like unexpected logins or quick fund transfers. -
Crack Down on Rogue Lending Apps
The RBI’s planned registry of digital lending apps should be strengthened with mandatory verification and fast takedowns of fake apps. -
Boost Law Enforcement Coordination
Fraud detection takes an average of 22 months. A cybercrime task force, linking banks, police, and cybercrime agencies, is urgently needed. -
Educate Customers at Scale
Scams succeed due to low awareness. A national campaign—like Swachh Bharat—for digital literacy, especially targeting rural and elderly people, is vital. -
Strengthen KYC and Use Tech
Small-ticket loans and microfinance need tighter checks. Blockchain-based ID systems, already used by some fintechs, can help ensure traceability. -
Increase Accountability
Fines must be meaningful. Instead of small penalties, the RBI could link fines to fraud losses—say, 5% of the amount involved—to push banks to act. The Expected Credit Loss (ECL) framework, coming in April 2025, should also drive better risk management.
