Bank Frauds , Banking Fundamentals to Know for Students.

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Bank Frauds:

 Basics and Investigation

 Banks are an essential part of the Indian economy.  While the primary responsibility for preventing fraud lies with banks themselves.  Banks dealing with the public's money: due care and diligence.  The RBI advisory to banks for the prevention of fraud.

 i. Fraud can loosely be defined as “any behavior by which one person intends to gain a dishonest advantage over another“ fraud, under section 17 of the Indian contract act, 1872, 

ii.RBI has defined the term “fraud” in its guidelines on frauds which reads as under.  “A deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, resulting into wrongful gain to any person for A temporary period or otherwise, with or without any monetary loss to the bank”.    Iii.Account opening fraud: this involves a deposit and cashing of fraudulent cheques.  Cheque kiting: is a method whereby a depositor utilizes the time required for cheques to dear to obtain an unauthorized loan without any interest charge.  Cheque fraud: The most common causes of this kind of fraud are} through stolen cheques and forged signatures.  Counterfeit securities: documents, securities, bonds and} certificate could be forged, duplicated, adjusted or altered and presented for loan collection.

 iv.Computer fraud: hacking, tampering with a diskette} to gain access to unauthorized areas and give credit to an account for which the funds were not originally intended.  Loan fraud: when funds are lent to a non-borrowing} customer or a borrowing customer that has exceeded his credit limit.  Money laundering fraud: this is a means to conceal} the existence, source or use of illegally obtained money by converting the cash into untraceable transactions in banks.

v.Letters of Credit: Most common in international} trading, these are instruments used across borders ads can be forged, altered, adjusted and take longer to identify. 

vi.lAdvanced Fees Fraud: Popularly known as „419‟,} advanced fees fraud may involve agents with an offer of a business proposition which would lead to access often for the long term.

vii.Frauds in banks’ advances portfolio: Frauds related to the advances portfolio accounts for the largest share of the total amount involved in frauds in the banking sector.

viii. Another point that public sector banks account for a substantial chunk of the total amount involved in such cases. 

ix.Declaration of fraud by various banks in cases of consortium multiple financing we have on occasions observed more than 12– 15 months lag in declaration.  The large value advance related frauds, which pose a significant challenge to all stakeholders, are mainly concentrated in the public sector banks.

 x.Majority of the credit related frauds are on account of deficient appraisal system, poor post disbursement supervision and inadequate.

 xi. Reserve Bank has also advised banks to audit periodically so that cases of multiple financing may be detected in the initial stages itself.