1

PROJECT STUDY REPORT

ON
“CYBER FRAUD IN BANKS AND HOW TO
MINIMIZE IT IN CONTEXT OF RRB”

Submitted in partial fulfillment of Award of

degree of
Bachelor of Business Administration
(2017-2020)

Under Supervision of: Submitted By:

Mrs. Neha Mam UTTARA SRIVASTAVA

BBA (4TH SEMSTER)

Dhirendra Mahila
PG College (MGKVP)
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CERTIFICATE
Certified that this Summer Training Report entitled
“……………………………………………………………………………………………
…………………………………………….” has been prepared by Mr./Ms.
………………………………………………………………………. of the BBA
Semester 4th during the Session 2017-2020 under my
Supervision.

The Summer Training Report is up to the standard and I

forward it to the Chief Manager (KASHI GOMTI SAMYUT
GRAMIN BANK) for getting it evaluated as per the Ordinances
governing the BBA course.

…………………..
(Signature)
Date ……………… ……………………
(Name)
……………………
(Designation)
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INDEX
SR NO. NAME OF THE TOPIC PAGE
NO.
1. DECLARATION 4
2. PREFACE 5
3. ACKNOWLEDGEMENT 6
4. ABSTRACT 7
5. OBJECTIVES 8
6. INTRODUCTION TO FRAUD 9-11
7. MEANING OF FRAUD 12
8. MEANING OF BANK FRAUD 13-18
9. LITERATURE REVIEW 19-20
10. CATEGORIES OF BANK FRAUDS 21-36
11. EFFECTS OF FRAUDS ON BANKS 37-39
12. BANK RULES REGARDING BANK FRAUDS 40
13. ROLE OF BANKER IN FRAUDS 41-42
14. FACTORS OF FRAUDS 43-50
15. ACTION TAKEN BY BANK TO MINIMIZE 51-54
THE BANK FRAUDS
16. PRESENT NEW FRAUD PREVENTION 55-58
CHALLENGES
17. RESEARCH METHODOLOGY 59-60
18. DATA ANALYSIS RESULT 61-68
19. CASE STUDY 69-70
20. VISIT REPORT 71
21. CONCLUSION 72-73
22. ANNEXURE 74-76
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DECLARATION

I hereby declare that I have successfully completed my

project on “CYBER FRAUD IN BANKS AND HOW TO
MINIMIZE IT IN CONTEXT OF RRB” This project is under
the guidance of Mr. ……………………………………. for the
partial fulfillment of degree in BBA during my academic
period 2017-2020. This project has not been copied from
any organization or any university or any college and is
the outcome of my own work.

Place: …………….. UTTARA SRIVASTAVA

Date: ……………… BBA-4th SEMESTER
Dhirendra Mahila PG College

(MGKVP)
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PREFACE

It was a pleasurable experience for me to work on this project

report “CYBER FRAUD IN BANKS AND HOW TO MINIMIZE IT IN
CONTEXT OF RRB” It has not only helped me to enhance my
knowledge about various strategies followed by the company
but also reviewed my knowledge about training & job
opportunities for the management students. In this project
report every possible effort has been made to highlight the
major aspects related to the topic by a comprehensive study of
literature and by survey information. . To make it easier
different tabular and diagrammatic approach has been used
which help in understanding the theme. It gives brands, a
market image as well as depicts phase of their life cycle to
understand the company value in a better way. Survey report
and secondary data are an important document and contains
information that can be used to find out what are the findings
of the research. I have tried my best to explore the truth in my
project reality regarding the survey and understanding practical
way of working.
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ACKNOWLEDGEMENT

It is my pleasure to thank all who helped us directly or indirectly

in preparation of this project report. It is a great privilege to
record our deep sense of gratitude to all the faculties who
stood by us throughout the making of this project report. It was
very exciting for us to work on the project of “CYBER FRAUD
IN BANKS AND HOW TO MINIMIZE IT IN CONTEXT OF
RRB” During this work I am gaining both practical as well as
theoretical knowledge regarding it. My first thanks goes to
MGKVP for providing us with excellent environment like
computer centre, library as well as providing us an excellent
faculties guiding for the completion of my project .I am greatly
obliged to my mentor “NEHA MAM" and our project Guide
“Sri. Shrish Gupta” for his benevolent guidance, suggestions
and help for preparing this project report
.
Place: …………….. UTTRA SRIVASTAVA
Date: ……………… BBA-4th SEMESTER
Dhirendra Mahila
PG College (MGKVP)
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ABSTRACT

Being one of the most rapidly expanding sector, internet has

become one of the most vital part of our life from work to
entertainment there's no other option now but it comes with a
price of our privacy.
Cyber Crimes are also on the rapid expansion causing our
sensitive data to be used without our permission. Governments
are aware of this matter doing everything they can to secure
our networks but many say security is just an illusion.
In this whole report we will analyze the strength of the people
who are trying to spoil the Cyber Ecosystem and the higher
grounds where we can deceive them.
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OBJECTIVES

 To understand the meaning of banking frauds and scams.

 To understand the various types of banking frauds and
scams.
 To ascertain the factors which encourages the fraudulent
activities in banks.
 To understand the categories of banking frauds and scams
i.e. Frauds and scams done by insiders and outsiders.
 To determine the effects of banking frauds and scams on
the society.
 To suggest the measures and techniques for reducing the
incidence of banking frauds and scams.
 To understand the Reserve Bank of India (RBI) rules to
prevent banking frauds and scams and responsibility of
bankers in banking frauds and scams.
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INTRODUCTION TO FRAUD
Fraud can be seen as the intentional misrepresentation,
concealment, or omission of the truth for the purpose of
deception or manipulation to the financial detriment of an
individual or an organization (such as a bank) which also
includes embezzlement, theft or any attempt to steal or
unlawfully obtain, misuse or harm the asset of a bank. Fraud
and its management have been the main factor. In the distress
of banks, and as much as various measures have been taken to
minimize the incidence of fraud, it still rises by the day because
fraudsters always device strategic ways of committing fraud.
This has become a point of great attention in the Srural banking
sector as well as every organization in Ghana. Although this
phenomenon is not unique to the rural banking industry or
peculiar to Ghana alone, the high incidence of fraud within the
banking industry has become a problem to which solution must
be provided in view of the large sums of money involved and its
adverse implications on the economy. Fraud in its effects
reduces the assets and increases the liability of any company. In
the case of rural banks, this may result in the loss of potential
customers or crisis of confidence of banking public and in the
long run end up in another failed bank situation. It is instructive
to know that many banking operatives have different reasons
for joining various banks. Many have the intention of working
 10

for a short time in the banking industry (get whatever they

could and find another job that is less demanding), some are in
the industry because of their love for banking and all it stands
for, while majority are there to enrich themselves by fraudulent
means. Due to the upsurge of great viability in the rural banking
sector, its dynamic and fast expanding level of activities, rural
banks are faced with different kinds of challenges, among
which is trying to prevent various fraudulent intentions of both
staff and customers As it were frauds seem to have increased
as new technology is born and more advanced techniques of
enhancing business transactions have been developed.
Fraudsters are constantly devising new 9plans, updating old
methods and trying out new techniques of bypassing these
electronic systems meant to ensure high security of banking
operations. The introductions of automated systems that lose
handwriting and fingerprint trails have not helped matters
either. In view of the staggering sums lost to fraudsters by the
Ghanaian financial sector, in these recent times and the rate at
which fraudsters appear to have shifted their attention and
directed their energies to banks, devising all unimaginable
tactics to exploit loopholes in the control measures and
capitalize on carelessness of the staff and customers, fraud in
the industry has prevented many banks from achieving their
goals. Some banks were just seen in the physical as body and
building whilst in reality they were already liquidated and many
 11

were already into distress. Taking a walk down memory lane.

The banking sector plays a very significant role in the
development of any economy. Banks in most economies are
the principal depositories of the public’s monetary savings, the
nerve centre of the payment system, the vessel endowed with
the ability of money creation and allocation of financial
resources and conduit through which monetary and credit
policies are implemented. The success of monetary policy, to a
large extent, depends on the health of the banking institutions
through which the policies are implemented. Whatever
problems which militate against the proper functioning of the
banking sector will invariably have multiplier effects on the
other sectors of the economy. This is one of the reasons why it
is essential to quickly diagnose any factor which may hamper
the smooth functioning of the rural banking sector and urgently
address such issues.
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MEANING OF FRAUD
The progress of business is depends upon expansion &
diversification. The indicators of growing economy are
acceleration in per capita income, standard of living & national
wealth, national income etc. In the growing economy some
unethical practices has been observed.
Nowadays scams, frauds & corruptions etc. has entered in
every sector. Fraudulent practices are like slow poisoning which
destroy the system of faith, loyalty, & reliability confidence of
the people & help to proceed towards under developed society.
Fraud is any dishonest act and behavior by which one person
gains or intends to gain advantage over another person. Fraud
causes loss to the victim directly or indirectly. Fraud has not
been described or discussed clearly in the Indian penal code but
sections dealing with cheating. Concealment, forgery
counterfeiting and breach of trust has been discusses which
leads to the act of fraud. In contractual term as described in the
Indian contract act, sec 17 suggests that a fraud means and
includes any of the acts by a party to a contract or with his
connivance or by his agents with the intention to deceive
another party or his agent or to induce him to enter in to a
contract.
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MEANING OF BANK FRAUD

Bank fraud is the use of potentially illegal means to obtain
money, assets, or other property owned or held by a financial
institution, or to obtain money from depositors by fraudulently
posing as a bank or other financial institution. In many
instances, bank fraud is a criminal offence. While the specific
elements of particular banking fraud laws vary between
jurisdictions, the term bank fraud applies to actions that
employ a scheme or artifice, as opposed to bank robbery or
theft. For this reason, bank fraud is sometimes considered a
white-collar crime. Banking frauds constitute a considerable
percentage of white-collar offences being probed by the police.
Unlike ordinary thefts and robberies, the amount
misappropriated in these crimes runs into lakhs and crores of
rupees. Bank fraud is a federal crime in many countries, defined
as planning to obtain property or money from any federally
insured financial institution. it is sometimes considered a white
collar crime. The number of bank frauds in India is substantial.
it in increasing with the passage of time. All the major
operational areas in banking represent a good opportunity for
fraudsters with growing incidence being reported under
deposit, loan and inter-branch accounting transactions,
including remittances. Bank fraud is a big business in today’s
world. with more educational qualifications, banking becoming
impersonal and increase in banking sector have gave rise to this
white collar crime. in a survey made till 1997 bank frauds in
nationalized banks was of rs.497.60crore. The occurrence of
 14

frauds in the banks is not a recent observable fact; in fact the

misdemeanor of forgery is perhaps as old as writing itself. Of
the inestimable types of financial offences that our nation and
all countries across the globe have had to eyewitness and
undergo from, a major one is financial frauds caused in the
banks popularly know as “bank frauds”. Any organization which
deals with money is always vulnerable to frauds and this is
more so in the case of financial institutions like banks which are
dealing only in money and that to as a business commodity.
Bank frauds are on the augment. The graph of fraud money is
mounting steeply. The reasons for increase in number of frauds
in the post nationalization period is attributed to a numerous
reasons, the most likely ones are the widespread branch
network, lack of trained staff for the expanding network and a
shift from the security oriented lending to the development
oriented approach i.e. advances to the priority sectors. Frauds
in Indian banks only prove that financial liberalization
aggravates the inherent tendency of shallow markets to foster
excessive speculation and worsens the systemic consequences
of such speculative activity. Revelations of fraud, evidence of
insider trading and a consequent collapse of investor interest
have led to an almost unstoppable downturn in Indian banks.
Bank frauds concern all citizens. It has become a big business
today. Bank frauds are the creation of professional criminals,
desperate customers or of errant bankers or their collusion
inter se. However the prima donna in the drama is the insider
or the banker. He opens the purse. He is often the target and at
times the tool. Occasionally, he is the 13 victim of the
temptations. Other contributory factors are incompetence,
 15

lethargy, negligence, connivance and ignorance. Situational

pressures and permissive attitudes of the society promote
them. High gains and low stakes encourage the incidence. The
rising trend makes it more and more important that ways and
means are found to combat the menace.
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BANK FRAUD
 Bank Fraud means obtaining money or property held
by bank or customer of the bank in order to make
more money.
 The reason of making fraud is to cheat the bank for
financial purpose.

 Two major factors are responsible for increasing

bank frauds:

Complexity of bank Failure in observation or

Transactions. procedures and norms laid
down in branch operation.
 17

Bank fraud means obtaining money or property held by bank or

customer of the bank in order to make more money. So
generally there are two factors of frauds: Complexity of bank
transactions and failure in observance or procedures and norms
laid down in branch operations. Fraud is any dishonest act and
behavior by which one person gains or intends to gain an
advantage over other person. The gain may accrue to the
person himself or to someone’s. Fraud causes loss to the victim,
directly or indirectly. In earthly terms bank frauds include all
sorts of misappropriations, embezzlements, manipulations of
negotiable instruments (cheques, drafts, handiest, bills or
statements of accounts, securities etc.). Also included are
misrepresentations, cheating, thefts, undue favors and
irregularities.

The frauds may be intentional or incidental and can be

committed by:
 The bank employees themselves,
 The staff members of the banks in collusion or
connivance with the customers or outsiders,
 The customers or outsiders.

The word “fraud” has been defined in the Indian contract act. In
short fraud is dishonesty leading to loss to someone.
Dishonesty is never accidental. Therefore there is always a
swindler behind each bank fraud. The number of bank frauds in
India is substantial. It is increasing with the passage of time.
Bank frauds are due to the bunko and the bungler bankers,
situational pressures and permissive attitudes. Fraud has not
 18

been defined in the Indian penal code directly. However

sections dealing with cheating, concealment, forgery
,counterfeiting, misappropriation and breach of trust cover the
same adequately. Hence what this paper fundamentally tries to
focus on is on the banker’s responsibility vis-à-vis the reach of
deception therein, consequences of such incident and tries to
look into the entire possible panacea to such a menace in the
society.
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LITERATURE REVIEW

In legal terms, fraud is seen as the act of depriving a person

underhandedly of something, which such a person would or
might be entitled to, but for the perpetration of fraud. In its
lexical meaning, fraud is an act of trickery which is intentionally
practiced in order to gain illegitimate advantage. Therefore, for
any action to constitute a fraud there must be deceitful
objective to benefit (on the part of the perpetrator) at the
disadvantage of another person or group. Fraud typically
requires stealing and manipulation of accounts, frequently
accompanied by cover up of the theft. It also involves the
translation of the stolen resources or property into own
resources or property. Young, (2002) says that, ample evidence
exists that individual integrity of those running the banks today
has never been at a higher level. Never before have we seen
attention to the actual steps; procedures and control of
monetary transactions. Employees’ as well as firms in all
industries engage in fraudulent practices all over the world.
Although the existence of fraud in our banks is not an
uncommon or unexpected behavior, its prevalence is what is
worrying because of all the various problems confronting the
most untraceable and Kindle. Frauds in banks lead to loss of
monies that ordinarily belong to someone other than the
banks. The loss results in some cases, in reducing the level of
resources available for use in the operations of the banks. In
very bad cases where frauds occur with crippling frequency and
in wholesomeness, the bank may be forced to close down as a
 20

result. When the bank loses money and is wound up, the
customers lose money. This leads to loss of confidence and
eventually reduced patronage. Another reason for worrying in
the banking industry is the vast variety of nature, character and
methodology employed in fraud. Moreover, the control of
identified specie seems to give birth to another that is
invariably more sophisticated and complex. Thus each case can
be said to be a variant of another and undoubtedly an
instructive study in human negative use of ingenuity and
endowment.
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CATEGORIES OF BANKING FRAUDS

CATEGORIES OF BANKING FRAUDS

Frauds done by Frauds done by

Insiders Outsiders
 22

Frauds done by Insiders

1. Rogue Trading: A rogue trader is a highly placed insider
nominally authorized to invest sizeable funds on behalf of the
bank; this trader secretly makes progressively more aggressive
and risky investments using the bank's money, when one
investment goes bad, the rogue trader engages in further
market speculation in the hope of a quick profit which would
hide or cover the loss. Unfortunately, when one investment
loss is piled onto another, the costs to the bank can reach into
the hundreds of millions of rupees; there have even been cases
in which a bank goes out of business due to market investment
losses.

2. Fraudulent loans: One way to remove money from a

bank is to take out a loan, a practice bankers would be more
than willing to encourage if they know that the money will be
repaid in full with interest. A fraudulent loan, however, is one in
which the borrower is a business entity controlled by a
dishonest bank officer or an accomplice; the "borrower" then
declares bankruptcy or vanishes and the money is gone. The
borrower may even be a non-existent entity and the loan
merely an artifice to conceal a theft of a large sum of money
from the bank.
 23

3. Wire fraud: Wire transfer networks such as the

international, interbank fund transfer system are tempting as
targets as a transfer, once made, is difficult or impossible to
reverse. As these networks are used by banks to settle accounts
with each other, rapid or overnight wire transfer of large
amounts of money are commonplace; while banks have put
checks and balances in place, there is the risk that insiders may
attempt to use fraudulent or forged documents which claim to
request a bank depositor's money be wired to another bank,
often an offshore account in some distant foreign country. Wire
fraud is defined as attempting to defraud using electronic
means, such as a computer or telephone. What must be proved
is that the person knowingly and willfully devised or intended
to devise a scheme to defraud. Since the advent of the internet,
there are literally thousands of crimes that fall under the
definition of wire fraud.

4. Demand draft fraud: DD fraud is usually done by one

or more dishonest bank employees that is the Bunko Banker.
They remove few DD leaves or DD books from stock and write
them like a regular DD. Since they are insiders, they know the
coding, punching of a demand draft. These Demand drafts will
be issued payable at distant town/city without debiting an
account. Then it will be cashed at the payable branch. For the
paying branch it is just another DD. This kind of fraud will be
discovered only when the head office does the branch-wise
reconciliation, which normally will take 6 months. By that time
the money is unrecoverable.
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5. Theft of identity: Dishonest bank personnel have

been known to disclose depositors' personal information for
use in theft of identity frauds. The perpetrators then use the
information to obtain identity cards and credit cards using the
victim's name and personal information.

6. Forged or fraudulent documents: Forged

documents are often used to conceal other thefts; banks tend
to count their money meticulously so every penny must be
accounted for. A document claiming that a sum of money has
been borrowed as a loan, withdrawn by an individual depositor
or transferred or invested can therefore be valuable to a thief
who wishes to conceal the minor detail that the bank's money
has in fact been stolen and is now gone.

7. Uninsured deposits: There are a number of cases

each year where the bank itself turns out to be uninsured or
not licensed to operate at all. The objective is usually to solicit
for deposits to this uninsured "bank", although some may also
sell stock representing ownership of the "bank". Sometimes the
names appear very official or very similar to those of legitimate
banks. For instance, some banks with no license and no
affiliation to its seemingly apparent namesake; the real Chase
Manhattan bank, New York. There is a very high risk of fraud
when dealing with unknown or uninsured institutions.
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Frauds done by Outsiders

1. Bill discounting fraud: Essentially a confidence trick,

a fraudster uses a company at their disposal to gain confidence
with a bank, by appearing as a genuine, profitable customer. To
give the illusion of being a desired customer, the company
regularly and repeatedly uses the bank to get payment from
one or more of its customers. These payments are always
made, as the customers in question are part of the fraud,
actively paying any and all bills raised by the bank. After certain
time, after the bank is happy with the company, the company
requests that the bank settles its balance with the company
before billing the customer. Again, business continues as
normal for the fraudulent company, its fraudulent customers,
and the unwitting bank. Only when the outstanding balance
between the bank and the company is sufficiently large, the
company takes the payment from the bank, and the company
and its customers disappear, leaving no one to pay the bills
issued by the bank.

2. Forgery and altered cheques: Thieves have altered

cheques to change the name (in order to deposit cheques
intended for payment to someone else) or the amount on the
face of a cheque (a few strokes of a pen can change 100.00 into
100,000.00, although such a large figure may raise some
eyebrows). Instead of tampering with a real cheque, some
 26

fraudsters will attempt to forge a depositor's signature on a

blank cheque or even print their own cheques drawn on
accounts owned by others, non-existent accounts or even
alleged accounts owned by non-existent depositors. The
cheque will then be deposited to another bank and the money
withdrawn before the cheque can be returned as invalid or for
non-sufficient funds.

3. Booster cheques: A booster cheque is a fraudulent or

bad cheque used to make a payment to a credit card account in
order to "bust out" or raise the amount of available credit on
otherwise-legitimate credit cards. The amount of the cheque is
credited to the card account by the bank as soon as the
payment is made, even though the cheque has not yet cleared.
Before the bad cheque is discovered, the perpetrator goes on a
spending spree or obtains cash advances until the newly-
"raised" available limit on the card is reached. The original
cheque then bounces, but by then it is already too late.

4. Stolen cheques: Some fraudsters obtain access to

facilities handling large amounts of cheques, such as a
mailroom or post office or the offices of a tax authority
(receiving many cheques) or a corporate payroll or a social or
veterans' benefit office (issuing many cheques). A few cheques
go missing; accounts are then opened under assumed names
and the cheques (often tampered or altered in some way)
deposited so that the money can then be withdrawn by thieves.
 27

Stolen blank cheque books are also of value to forgers who

then sign as if they were the depositor.

5. Credit card fraud: Credit card fraud is widespread as a

means of stealing from banks, merchants and clients. A credit
card is made of three plastic sheet of polyvinyl chloride. The
central sheet of the card is
known as the core stock. These cards are of a particular size
and many data are embossed over it. But credit cards fraud
manifest in a number of ways. They are:
 Genuine cards are manipulated.
 Genuine cards are altered.
 Counterfeit cards are created.
 Fraudulent telemarketing is done with credit cards.
 Genuine cards are obtained on fraudulent applications in
the names/addresses of other persons and used.
It is feared that with the expansion of E-Commerce, M-
Commerce and Internet facilities being available on massive
scale the fraudulent fund freaking via credit cards will increase
tremendously.

6. Accounting fraud: In order to hide serious financial

problems, some businesses have been known to use fraudulent
bookkeeping to overstate sales and income, inflate the worth
of the company's assets or state a profit when the company is
operating at a loss. These tampered records are then used to
seek investment in the company's bond or security issues or to
make fraudulent loan applications in a final attempt to obtain
 28

more money to delay the inevitable collapse of an unprofitable

or mismanaged firm.

7. Cheque kiting: Cheque kiting exploits a system in

which, when a cheque is deposited to a bank account, the
money is made available immediately even though it is not
removed from the account on which the cheque is drawn until
the cheque actually clears. Deposit 1000 in one bank, write a
cheque on that amount and deposit it to your account in
another bank; you now have 2000 until the cheque clears. In-
transit or non-existent cash is briefly recorded in multiple
accounts. A cheque is cashed and, before the bank receives any
money by clearing the cheque, the money is deposited into
some other account or withdrawn by writing more cheques. In
many cases, the original deposited cheque turns out to be a
forged cheque. Some perpetrators have swapped checks
between various banks on a daily basis, using each to cover the
shortfall for a previous cheque. What they were actually doing
was check kiting; like a kite in the wind, it flies briefly but
eventually has to come back down to the ground.

8. Stolen payment cards: Often, the first indication that

a victim's wallet has been stolen is a 'phone call from a credit
card issuer asking if the person has gone on a spending spree;
the simplest form of this theft involves stealing the card itself
and charging a number of high-ticket items to it in the first few
minutes or hours before it is reported as stolen. A variant of
this is to copy just the credit card numbers (instead of drawing
 29

attention by stealing the card itself) in order to use the

numbers in online frauds.

9. Duplication or skimming of card

information: This takes a number of forms, ranging from a
dishonest merchant copying clients' credit card numbers for
later misuse (or a thief using carbon copies from old mechanical
card imprint machines to steal the info) to the use of tampered
credit or debit card readers to copy the magnetic stripe from a
payment card while a hidden camera captures the numbers on
the face of the card. Some thieves have surreptitiously added
equipment to publicly accessible automatic teller machines; a
fraudulent card stripe reader would capture the contents of the
magnetic stripe while a hidden camera would sneak a peek at
the user's PIN. The fraudulent equipment would then be
removed and the data used to produce duplicate cards that
could then be used to make ATM withdrawals from the victims'
accounts.

10. Impersonation and theft of identity: Theft of

identity has become an increasing problem; the scam operates
by obtaining information about a victim, then using the
information to apply for identity cards, accounts and credit in
that person's name. Often little more than name, parents'
name, date and place of birth are sufficient to obtain a birth
certificate; each document obtained then is used as
identification in order to obtain more identity documents.
Government-issued standard identification numbers such as
 30

"Social security numbers, PAN numbers" are also valuable to

the identity thief. Unfortunately for the banks, identity thieves
have been known to take out loans and disappear with the
cash, quite content to see the wrong persons blamed when the
debts go bad.

11. Fraudulent loan applications: These take a

number of forms varying from individuals using false
information to hide a credit history filled with financial
problems and unpaid loans to corporations using accounting
fraud to overstate profits in order to make a risky loan appear
to be a sound investment for the bank. Some corporations have
engaged in over-expansion, using borrowed money to finance
costly mergers and acquisitions and overstating assets, sales or
income to appear solvent even after becoming seriously
financially overextended. The resulting debt load has ruined
entire large companies, such as Italian dairy conglomerate
Parma at, leaving banks exposed to massive losses from bad
loans.

12. Phishing and Internet fraud: Phishing operates

by sending forged e-mail, impersonating an online bank,
auction or payment site; the e-mail directs the user to a forged
web site which is designed to look like the login to the
legitimate site but which claims that the user must update
personal info. The information thus stolen is then used in other
frauds, such as theft of identity or online auction fraud. A
number of malicious "Trojan horse" programmers have also
 31

been used to snoop on Internet users while online, capturing

keystrokes or confidential data in order to send it to outside
sites.

13. Money laundering: The term "money laundering"

dates back to the days of Al Capone Money laundering has
since been used to describe any scheme by which the true
origin of funds is hidden or concealed. The operations work in
various forms. One variant involved buying securities (stocks
and bonds) for cash; the securities were then placed for safe
deposit in one bank and a claim on those assets used as
collateral for a loan at another bank. The borrower would then
default on the loan. The securities, however, would still be
worth their full amount. The transaction served only to disguise
the original source of the funds.

14. Forged currency notes: Paper currency is the usual

mode of exchange of money at the personal level, though in
business, cheques and drafts are also used considerably. Bank
note has been defined in Section 489A.If forgery of currency
notes could be done successfully then it could on one hand
made the forger millionaire and the other hand destroy the
economy of the nation. A currency note is made out of a special
paper with a coating of plastic laminated on both sides of each
note to protect the ink and the anti forgery device from
damage. More over these notes have security threads, water
marks. But these things are not known to the majority of the
population. Forged currency notes are in full circulation and its
 32

very difficult to catch hold of such forgers as once such notes

are circulated its very difficult to track its origin. But the latest
fraud which is considered as the safest method of crime
without making physical injury is the Computer Frauds in Banks.
Computerization of banks had started since 1994 in India and
till 2000 4000 banks were completely and 9000 branches have
been partially computerized. About 1000 branches had the
facilities for International bank Transaction. Reserve Bank Of
India has evolved working pattern for Local area Network and
wide area Network by instituting different microwave stations
so that money transactions could be carried out quickly and
safely.
The main banking tasks which computers perform are
maintaining debit-credit records of accounts, operating
automated teller machines, and carry out electronic fund
transfer, print out statements of accounts create periodic
balance sheets etc. Internet facilities of computer have
revolutionized international banking for fund transfer and for
exchanging data of interest relating to banking and to carry out
other banking functions and provides certain security to the
customers by assigning different pin numbers and passwords.

15. Advance Fee Fraud: This may involve an agent

approaching a bank, a company or individual with another to
access large funds at below market interest rates often for long
term. This purported source of funds is not specifically
identified as the only way to have access to it through the agent
who
 33

must receive a commission “in advance”. As soon as the agent

collects the especially distressed banks and banks needing large
funds to bid for foreign exchange can easily fall victim of this
type of fraud. When the deal fails and the fees paid in advance
are lost, these victims are not likely to report the losses to the
police or to the authorities.

16. Fund Diversion: In this case, bank staff sometimes

diverts customers’ deposits and loan repayment for personal
use. Another case of this is the tapping of funds from interest in
suspense accounts in banks.

17. Account Opening Fraud: This involves the deposit

and subsequent cashing of fraudulent cheques. It usually starts
when a person not known to the bank asks to open a
transaction account such as current and savings account with
false identification but unknown to the bank.

18. Counterfeit Securities: Counterfeiting of

commercial financial instruments is one of the oldest forms of
crime. Modern photographic and printing equipment has
greatly aided criminals in reproducing good quality forged
instruments. The documents may be total counterfeit or may
be genuine documents that are copied, forged or altered as to
amount, payout date, pay or terms of payment. A common
fraud is to present the counterfeit stocks or bonds as collateral
for loan. The presenter would draw out the proceeds and
disappear before the financial instruments are found to be
counterfeit.
 34

19. Money Transfer Fraud: Money transfer services

are means of moving to or from a bank to beneficiary account
at any bank point worldwide in accordance with the
instructions from the banks’ customers. Some common means
of money transfer are mail, telephone, over-the-counter,
electronic process and telex. Fraudulent money transfer may
result from a request created solely for the purpose of
committing a fraud or altered by changing the beneficiary’s
name or account number or changing the amount of the
transfer.

20. Letter of Credit Fraud: A letter of credit, also

known as a documentary credit or bankers commercial credit,
or letter of undertaking, is a payment mechanism used in
international trade to provide an economic guarantee from a
creditworthy bank to an exporter of goods. This generally arises
out of international trade and commerce. They stimulate trade
across national borders providing a vehicle for ensuring prompt
payment by financially sound institutions. Overseas suppliers
continue to receive spurious letters of credit, which are usually
accompanied by spurious bank drafts with fake endorsements
which guarantee payments.

21. Computer Fraud: Computer Frauds involves the

deceptive manipulation of the banks’ computer, either at the
data collection stage, the input processing stage or even the
data dissemination stage. Computer frauds could also occur
due to improper input system, virus, program manipulations,
 35

transaction manipulations and cyber thefts. It can also take the

form of corruption of the programmed or application packages
and even breaking into the system through remote sensors. A
banks’ data can also be tampered with at the data centre to
gain access to unauthorized areas or even give credit to
accounts for which the funds were not originally intended. This
kind of fraud can remain undetected for a long time. In this
epoch of enormous deployment of automated teller machines
(ATMs) and online real time e-banking and commerce;
computer frauds arising from cyber thefts and crimes has
assumed a very threatening dimension . No bank seems to be
invulnerable to it, and a considerable percentage of the
enormous amount of money spent annually in the banking
sector to help reduce fraud usually are channeled towards
fighting computer frauds and cyber crimes and theft.

22. Clearing Fraud: Most clearing frauds hinge on

suppression of an instrument so that at the expiration of the
clearing period application to the instrument, the collecting
bank will give value as though the paying bank had confirmed
the instrument good for payment. Clearing cheques can also be
substituted to enable the fraudster divert the fund to a wrong
beneficiary. Misrouting of clearing cheques can also assist
fraudsters to complete a clearing fraud. Askew, a local clearing
item can be routed to an up country branch; the delay entailed
will give the collecting bank the impression that the paying
bank had paid the instrument.
 36

23. Unofficial Borrowing: This occurs when bank

employees borrow from the vaults and teller tills off the record.
Such unauthorized borrowings are done in exchange of the
staff post-dated cheque or nothing. These borrowings are more
rampant on weekends and during the end of the month when
salaries have not been paid. Some of the unauthorized
borrowings from the vault, which could run into thousands of
cedes, are used for fast businesses lasting a few hours or days
after which the resources are replaced without any
substantiation in place that they were taken in the first place.
Such a practice when done recurrently and with no official
records, soon very easily becomes prone to manipulations,
whereby they resort to other means of balancing the cash in
the bank’s vault without ever having to replace the sums of
money collected.

24. Voucher Manipulation: Manipulation of Vouchers

involves the replacement or alteration of entries of one account
to another account being used to commit the fraud. This
account would obviously be a fabricated account into which
the funds of unsuspecting clients of the banks are transferred.
The amounts taken are usually in small amounts so that it will
not easily be noticed by top management or other unsuspicious
staff of the bank. Manipulation of vouchers can thrive in a
banking system saddled with inadequate checks and balances
such as poor job segregation and lack of detailed daily
examination of vouchers and all bank records.
 37

EFFECTS OF FRAUDS ON BANKS

1.Loss of Public Confidence in Banks: Fraud is

perhaps the most fatal of all the risks confronting banks. The
enormity of bank frauds in Ghana can be inferred from its
value, volume and actual loss. A good number of banks’ frauds
never get reported to the appropriate authorities, rather they
are suppressed partly because of the personalities involved or
because of concern over the negative image effect that
disclosure may cause if information is leaked to the banking
public The banks’ customers may lose confidence in the bank
and this could cause a setback in the growth of the bank in
particular.

2. Loss of Money: Fraud leads to loss of money, which

belong to either the bank or customers. Such losses may be
absorbed by the profits for the affected trading period and this
consequently reduces the amount of profit, which would have
been available for distribution to shareholders. Losses from
fraud which are absorbed to equity capital of the bank impairs
the bank’s financial health and constraints its ability to extend
loans and advances for profitable operations. In extreme cases
rampant and large incidents of fraud could lead to a bank’s
failure.
 38

3. Increased Operating Cost: Fraud can increase the

operating cost of a bank because of the added cost of installing
the necessary machinery for its prevention, detection and
protection of assets. Moreover, devoting valuable time to
safeguarding its asset from fraudulent men distracts
management. Overall, this unproductive diversion of resources
always reduces outputs and low profits which in turn could
retard the growth of the bank.

4. Low Asset Quality: It also leads to a diminishing effect

on the asset quality of banks. The problem is more dangerous
when compounded by insider loan abuses. Indeed, the first
generation of liquidated banks (Co-operative Bank and Bank for
Housing and Construction) by the Bank of Ghana was largely a
consequence of frauds perpetrated through insider loan
abuses. If this problem is not adequately handled, it could lead
to distress and bank failure.

5. Reduced the amount of profit: Banking frauds

reduce the profit of banks. Because of the frauds there is
decrease in the profit of the banks. If there is no frauds in banks
so bank is able to give maximum return on the investment of
the customers. Fraud leads to loss of money, which belong to
either the bank or customers, so there is decrease in the profit
margin of the company.
 39

6. Unattended: There are instances of fraud that

adversely impact banks on a regular basis and go unnoticed or
unattended. All these cases of fraud result in sizeable monitory
losses for the banks once they go undetected.

7. Creditability: Fraud events raise questions around the

credibility of the fraud deterrent processes and the
technological capabilities of the institution.
 40

BANK RULES REGARDING BANKING

FRAUDS AND
SCAMS

After receiving Xerox papers (which were actually forged by the

offenders) of the property, the bank passed the same on to the
legal section. After scrutiny, the legal consultant told the bank
that the Xerox documents were `perfect' and to release loan
after execution of sale deed. The bank rules state that loan
applications can be examined "even with Xerox copies of
documents. The alleged greediness of employees to give their
salary slips and other documents on payment of some money
made the job of the cheats easier. The police opine that unless
bankers evolve a foolproof system, the offenders continue to
take advantage of the lapses. Though computer based banking
crimes are yet limited but it is increasing with a huge pace.
Their investigation is highly intricate and daunting. Prevention
is the best alternative. It is comparatively easier, though even
with the best laws, efficient investigation team the successful
conclusion of most cyber crimes will remain a remote
possibility .Therefore emphasis is more on prevention. In bank
administration, one feels that not much attention is paid to
preventive measures. Bank managements must direct their
orientation towards preventive rather than detective or
punitive measures. Preventive vigilance must be the prime
agenda to bring down the occurrence of fraud in banks.
 41

ROLE OF BANKERS IN A BANK FRAUD

Bank frauds crop up in all spheres of banking dealing, like:

Cheque frauds, Deposit account frauds, Purchased bill frauds,
Hypothecation frauds, Loan frauds etc. A dishonest banker can
play havoc with the banks money. The bank has therefore to
sentinel itself and its customer against the deceitful employee.
The vicinity of business of the banker is extensive. The following
operational avenues have been noticed time and again.
Manipulation of cash by those handling cash, misappropriation
of customer deposit accounts, misappropriation of money in
telegraphic transfers, clearing forged cheques and other
instruments, fraudulently while working in clearing
departments, creaming of the sundry accounts, tinkering with
the central accounts, accepting counterfeit currency for a
consideration, helping the bank robber, by giving information
etc.

An analysis of frauds reported by banks to RBI broadly indicated

that frauds perpetrated on banks could be classified into the
following categories:-

 Misappropriation of cash tendered by the banks

constituents and misappropriations of cash remittance.

 Withdrawal from deposit accounts through forged

documents/instruments.
 42

 Fraudulent encashment of negotiable instruments by

opening an account in fake/fictitious name.

 Perpetration of frauds through clearing transactions.

 Misutilisation/overstepping of lending/discretionary
powers, non-observance of prescribed norms/ procedures
in credit dispensation etc.

 Opening/Issue of Letters of Credit, Banks Guarantees Co-

acceptance of bills without proper authority and
consideration.
 43

FACTORS OF FRAUDS

FACTORS OF FRAUDS

INTERNAL EXTERNAL
FACTORS FACTORS
 44

INTERNAL FACTORS

1. Poor Management: This comes in a form of

inadequate supervision. A junior staff with fraudulent
tendencies that is not adequately supervised would get the
impression that the environment is safe for the perpetration of
fraud. Poor management would also manifest in ineffective
policies and procedures, which a fraudulent minded operator in
the system will capitalize on. Even where there are effective
policies and procedures in place, fraud could still occur with
sometimes deliberate skipping of these tested policies and
procedures.

2. Inexperienced Personnel: Inexperienced personnel

are susceptible to committing unintentional fraud by falling for
numerous tricks of fraudsters. Inexperienced personnel are
unlikely to notice any fraud attempts and take necessary
precautionary measures to checkmate the fraudster or set the
detection process in motion.

3. Overstretching: Overstretching is another reflection of

poor management. This can aid perpetration of fraud to a large
extent. A staff who is overstretched is not likely to perform at
optimum level of efficiency.
 45

4. Job Rotation: Ordinarily, the longer a man stays on a

job, the more proficient he is likely to be. An operator who has
spent so long on a particular job may be encouraged to think
that no one else can uncover his fraud. The existence of this
kind of situation in a bank is clear evidence of poor
management and such situations encourage fraudulent
practices.

5. Poor Remuneration: Poor salaries and poor

conditions of service can also cause and encourage fraud.
Employees that are poorly paid are often tempted to
fraudulently convert some of the employers’ monies to their
own use in order to meet their personal and social needs. This
temptation is even stronger on bank employees who on daily
basis have to deal with cash and near cash instruments. In our
society, it is argued that greed rather than poor working
conditions or poor salaries is what lures most people into
fraudulent acts. This explains why fraud would still exist in the
banking sector, which is reputed to be one of the highest
paying sectors. Some people have an insatiable appetite to
accumulate wealth and would therefore steal irrespective of
how good their earnings are.
 46

6. Frustration: Frustration could also lead to fraud. Where

a staff feels short-changed in terms of promotion and other
financial rewards, they become frustrated and such frustration
could lead to fraud as such employee would attempt to
compensate himself in his own way.

7. Inadequate Training and Re-Training: Lack of

adequate training and retraining of human resources both on
the practical and theoretical aspects of banking activities and
operations more often than not leads to poor performance.
Such inefficient performance creates a loophole which can very
easily be exploited by fraudsters.

8. Poor Book-keeping: Inability to maintain appropriate

books of accounts together with failure to reconcile the various
accounts of the bank on daily, weekly or monthly basis more
often than not will attract fraud. This loophole can very easily
be exploited by bank staff that is fraudulent. The prevalence of
fraud and forgeries are an indication of weakness in a bank’s
internal control systems.

Aside the above-mentioned causes of fraud, the following

factors greatly contribute to fraud:

 Inadequate compensation, salaries and fringe benefits

which are accruable to bank staff.
 47

 Refusal to comply with laid-down procedures without any

penalty or sanction.
 Conspiracy between interacting agents charged with the
responsibility of protecting the assets and other interest of
the bank;

 Poor working conditions;

 Poverty and infidelity of employees.

9. Weak Accounting: The weak accounting is one of the

important internal factor which causes to the banking frauds
and scams.
 48

EXTERNAL FACTORS

1.Slow and Tortuous Legal Process: In Banks there

is a slow legal process which is one of the reasons for occurring
the frauds. If in every bank there is a strong measures and fast
legal process to deal with the frauds then chances of will be
less or minimize. So every bank there should be strong
procedures to handling this type of baking frauds.

2. Poverty: The reason for banking frauds is poverty. In

India there is so much poverty so that people are makes the
frauds for removing there poverty because some peoples wants
the all type of facilities in their life and wants to improve their
standard of living. So they started the illegal activities for
earning money. So poverty is also leads to banking frauds.

3.Widening Gap between the Rich and the

Poor: In India there is so much gap between the rich and poor
people. Because of money some peoples are behaving different
.In most of sectors there is a partiality between the rich and
poor peoples. So this gap is increasing by day –today and this
leads to the banking frauds and scams.
 49

4. Job Insecurity: Nowadays job insecurity is one of the

serious problems that leads to banking frauds. Permanent jobs
are very less. So for living the money is so much important. The
needs and wants of the people are increasing so money is
become necessary to satisfied that needs and wants. Because
of the job insecurity some peoples want to reserve money that
in future they can use. So for satisfying the future needs and
wants he is undertake the baking frauds.

5. Peer Group Pressure: The another reason for

happening the frauds is that there is peer group pressure in
some of the banks. So because of that people are doing this
illegal activities which are very harmful to all the society.

6. Increased financial burden on Individuals:

There is so much financial burden on each and every individual
so because of that financial burden people are stated to
earning from doing the bank frauds

7. Lack of Proper Training: There is lack of properly

trained and experienced person. There is a sudden and
tremendous increase in banking business. The sudden
expansive explosion has created a vacuum of personnel. New
recruits often do not have adequate training or experience
before they are put in responsible positions. The findings reveal
 50

that 68.77% of respondents have not undergone any formal

training in prevention of bank frauds.

8. Lack of Sufficient Staff: Moreover bank staff feels

overburdened. The life has become too fast. The banker does
not have enough time to scrutinize documents thoroughly.
About two thirds of the respondents feel that they do not have
sufficient staff to carry out the work meticulously. The
overburdened staff was given the highest weight age as the
reason responsible for bank frauds.
 51

ACTIONS TAKEN BY BANK TO MINIMIZE

THE BANK
FRAUDS

1. Assess fraud implication of banks Strategy:

The fraud function has an opportunity to transform its role and
status by thinking and acting more like a stakeholder in the
business. This involves assessing the risk factors and their
relative volatility, adopting a more commercial and customer-
focused approach and using technology innovation to provide
customer-centric solutions. Understanding the risks will enable
capability or knowledge gaps to be identified and mitigating
actions to be taken. Our research has found that the innovation
agenda is central to banks strategic growth plans and therefore
will open up new risks for banks in the areas of fraud
management and IT security. Experience also shows that
business units in many organizations elect for point solutions.
When this occurs, there is a clear risk that a lack of coordination
and integration will seriously undermine the effectiveness and
efficiency of enterprise-wide fraud management.

2. Model customer behaviors and situations:

Fraud solutions and offerings should be developed and refined
to address the risks of individual customers or customer
segments. Fraud interventions which impact the customers
 52

should be based on individual customer behavior and

circumstance. This positions the fraud management function as
an insightful guide to the business, enabling the design and
implementation of robust fraud mitigation as part of the overall
customer offering. For example, gaining a better understanding
of current and future customer demographics provides the
opportunity to predict future vulnerabilities thereby turning
fraud management into a competitive advantage by developing
products and services that meet the needs of customers.

3. Develop Dynamic Analytical models: Our

experience is that banks have historically deployed anti-fraud
and anti- AML solutions without the appropriate capabilities for
dynamic optimization. Fraud management must be highly
responsive, as criminals are more sophisticated and increased
processing power is available through cloud technologies.
Organizations that fail to maintain and optimize their systems
are likely to be targets for fraudsters. Typically, to optimize
analytical models, banks need to interact more closely both
with internal and external analytical resources and with
software suppliers. Fraud teams need to be equipped with the
skills and processes to manage this. Governance of models,
analytics and rules changes is coming under increasing
regulatory interest and therefore, as part of developing this
capability, proper governance should also be established. In the
past, fraud managers would have a hypothesis which they
would test with analytics (often calling on credit risk resources
to perform the analysis). Going forward, fraud
 53

managers will start with a business outcome or goal rather than

a hypothesis. They will use analytics to gather historical data
that will help them find the answer. They will then reuse
analytics to create statistical or machine-learning models of the
data to answer their question. This will create an increasing
need to bring various data sources together, particularly if an
organization has deployed a number of non-integrated point
fraud solutions.

4. Develop Pan-Channel Customer

Authentications: Customer on-boarding and ongoing
authentication policy are no longer the preserves of the
compliance function or of the individual channel owner. These
are essential elements of the customer’s experience and
therefore key to business growth and customer retention. The
fraud management team, as trusted advisor, needs to work
with the business to develop a panchannel, customer-centric
authentication strategy that provides consistency of customer
experience and reduced cost for deployment while managing
risk. The authentication strategy will shape the IT strategy, and
the development of strategy should cover the following four
key elements to optimize the business value derived: first,
define authentication; second, develop the authentication
solutions; third, mobilize the change, and fourth, communicate
the strategy.
 54

5. Develop the IT Strategy for Holistic Decision:

The first step revising the IT strategy to incorporate Customer
Authentication Strategy and Analytical Capability Requirements
is considered very important. Second, banks should consider
what changes would need to be made to effect decisions based
on a holistic overview of the many different aspects of a
transaction, whether such aspects involve a customer, member
of staff, retailer, device or anything else.
 55

PRESENT NEW FRAUD PREVENTION

CHALLENGES

1. Changing customer demographics:

Populations are aging; creating a large group that has assets but
is vulnerable to attack. Whilst some financial crime committed
against the elderly is committed by strangers, this group can
also be vulnerable to exploitation by relatives and caregivers.
And 2.5 million of those people were fraud victims. It is found
that many victims are unlikely to tell anyone about it, and that
there is still a feeling of embarrassment related to being
scammed. Only 8% went to the police, 9% got advice from
organizations such as the Citizens Advice Bureau, and 72% did
not tell friends or family about it. The research also found that
the most common type of scam people fell for was online
fraud, with 34% of scams occurring via the internet. As the
numbers of people using family or other caregivers to help
them manage their finances rises, banks may want to re-think
their approach to how customers identify themselves as the
customer’s “team” will require access to funds in this
environment. To do this successfully, Banks would have to look
at each customer as an individual and, by extension, look at
each individual transaction holistically.
 56

2. Market expansion:
Banks’ expansion into emerging markets is likely to continue as
they represent circa 50 of GDP and only 30% of the global
consumer banking revenue pool. However, fraud management
and prevention techniques in emerging markets are not fully
mature and a rush to expand into these markets could lead to
significant fraud losses. Know Your Customer (KYC) data in
emerging markets pose specific problems for banks seeking to
limit fraud losses. In addition, international cyber-criminals will
be tempted to operate in markets where they feel fraud
controls are less sophisticated and local criminals may migrate
to bank fraud from other crimes. Rapid urbanization
accelerates the trend toward increased fraud, putting criminals
in closer proximity to each other and encouraging the sharing
of information as well as the recruitment of allies and
accomplices. Among the top 150 cities worldwide, 116 are in
emerging markets. The volume of international payments
traffic will also increase in line with growth in emerging
markets, which makes it easier for perpetrators of fraud to
conceal their activities. This creates the risk of volumes
overwhelming existing (often manual) fraud controls. Large
migrant communities may need transfer and payment systems
to support the flow of remittances to home countries. Indeed,
remittances sent home from migrant workers are estimated to
be three times the flow of aid sent from rich countries to
poorer countries. While much of this money is used for
immediate family needs, there is a significant portion available
for savings and investment and banks have targeted this
market with new products Band offerings.
 57

3. Adoption of new technologies and channels:

Broad adoption of new technologies such as social media and
mobile internet has created new channels for transfers and
purchases, along with numerous new opportunities for fraud.
Social networks can be used by fraudsters to secure customer
data, share methodologies and recruit new accomplices. Over
600 million individuals were on Face book by early 2011, and
nearly 3 billion consumers worldwide will be global 3G
subscribers by 2015. New payment channels such as mobile
phones create technical risks for the banking sector to manage.
Remote banking access, presenting low personal risk, is
attractive to criminals, and attacks on remote access points are
likely to continue to grow in value, speed and sophistication.
The opportunities to do so, will also grow as more people
become comfortable with the digital environment and bank
online; for example, said they preferred to bank online in a
recent survey, including 57% of those over the age of 55. As the
customer experience is transformed, banks should consider
combining two previously distinct functions—IT Security and
Fraud Management—to address the increasingly technical
nature of fraud attacks. Clients across geographies lead us to
believe that direct channels to the consumer will see continued
large-scale attacks, with criminals sharing and even jointly
developing new methodologies. Banks that are slow to adapt
new protective measures may find themselves ruthlessly
attacked. Customers typically prefer to interact with their bank
through their chosen channel with simple and convenient on-
 58

boarding and ongoing identity and verification procedures. The

growth of new markets and the proliferation of channels,
means that banks must explore innovations in, including
biometrics, to secure both themselves and their customers
from identity and verification procedures new kinds of attack.
 59

RESEARCH METHODOLOGY

 TYPE OF RESEARCH: ANALYTICAL RESEARCH

 TYPE OF DATA: PRIMARY DATA

 SAMPLE METHOD: CONVENIENT SAMPLING

 SURVEY METHOD: QUESTIONNAIRE

 SAMPLE SIZE: 50

 SAMPLE AREA: VARANASI

 60

DATA COLLECTION TOOLS

PRIMARY DATA: My primary data consists mainly from my

visit to the KASHI GOMTI SAMYUT GRAMIN BANK.

SECONDARY DATA: My secondary data consists of the

information collected from various, Internet sites, newspapers
internet web portals.
 61

DATA ANALYSIS RESULT

1.Do you think that frauds and scams are happening in banks?

May be, 26.90%

Yes, 57.70%

No, 15.40%
 62

2.Do you think that banking frauds and scams are harmful to
the society?
No, 0

Yes, 100%

3. Is frauds and scams have ever occurred in this bank?

Yes, 44.20%

No, 55.80%
 63

4.Are you satisfied with the measures to preventing the

banking frauds and scams?

No, 32.70%

Yes, 67.30%

5.Do you have some steps to protect your bank from the
banking frauds and scams?

No, 30.80%

Yes, 69.20%
 64

6.Do you think that scams and frauds deal in banks are
connected to the politics?

Yes, 26.90%

May be, 57.70%

No, 15.40%

7.Do you have the fraud experts in your bank to monitor the
transactions to protect your bank from criminal activities?

No, 38.50%

Yes, 61.50%
 65

8. Is the banking frauds affects on the performance of the

banks?

No,
7.80%

Yes, 92.20%

9. Does the bank frauds and scams affects the goodwill of the
banks?

May be, 5.80%

No,
5.80%

Yes, 88.50%
 66

10.Does your bank follows the RBI regulations regarding the

banking frauds and scams?

No, 11.50%

Yes, 88.50%

11.Is there any penalty for the persons who does the banking
frauds and scams?

No, 13.70%

Yes, 86.30%
 67

12.Do you think that banking frauds and scams are happen
because of the poor management?

May Be, 25%

No, 7.70%
Yes, 67.30%

13.Does the recruitment method have a direct link with the

rate of frauds and scams in baking sector?

Yes, 24%

May Be, 56%

No, 20%
 68

14.Can banks ever operate without an incidence of frauds and

scams?

No, 43.10%

Yes, 56.90%

15.Do you think that because of the banking frauds and scams
the profit of the bank is decrease?

May Be, 37.30%

Yes, 58.80%

No, 3.90%
 69

CASE STUDIES
1. STATE BANK OF BIKANER AND JAIPUR
 Date of occurrence : 26.06.2013
 Date of detection : 22.01.2014
 Place of occurrence : Jaipur
 Name of the principal party/account : Shri RKB
 Area of operation where the fraud has occurred : term
loan
 Nature of fraud: C.F.
 Amount of involved (Rs. In lakh ) : 2.46
 Total recovery in lakhs : 2.46
 Modus operant: shri RKB (state govt. employee) was
sanctioned a personal loan for Rs. 2.50 lakhs on
26.06.2013. Branch obtained KYC documents, form-16,
salary certificate & irrecoverable authority letter issued by
respective govt. department and post dated cheques
(PDCS) of salary saving a/c of borrower with branch pre-
sanction inspection of office & resident of borrower was
conducted by the branch officials, at the time of sanction.
Recovery in the loan a/c was not for incoming & a/c stood
overdue, due to non credit of salary in saving a/c of
borrower with branch on taking up the issue with
employer it was found that letter of authority was fake.
Besides, the details of salary provided to the branch did
not tally with the detail of salary records with department.
It is also reported that the employee is absent since, July
2013 & no salary is being paid by the department.
 70

2. CENTRAL BANK OF INDIA

 Date of occurrence : 13.08.2010
 Date of detection : 06.11.2013
 Place of occurrence : Ahmadabad
 Name of the principal account : Advance
 Area of operation where fraud has occurred : export credit
 Nature of fraud : C & F
 Total amount involved : Rs. 38525.74 lakhs
 Amount recovered : Nil
 Brief history (modus operandi) : M/S ‘E’, a company was
enjoying credit facilities with consortium of banks. The
company approach education our bank for credit facilities
outside purview of consortium arrangement for executive
of project in Tonzonic. The credit facilities were
sanctioned to the company as under.
 1. Export packing credit (270 day’s) backed by confirmed
order/ LC cum EBP/ EBD – 330.00 crores.
 2. Short term loons (unsecured) for 90 days – 50.00 crores
 3. Letter of credit (DA/DP) inland/ import/ 100 crores
stand by LC buyer’s credit & usance in 90 days inland 180
day import. The account was classified as NPA on
investigation it was observed that, funds were directed to
company’s a/c’s with other bank’s & not utilized for the
purpose for which it was financed thus, has
misrepresented the fact’s & cheated the bank.
 71

VISIT REPORT
For collection of primary data I have visited KASHI GOMTI
SAMYUT GRAMIN BANK. The branch manager of bank he
guided me many things regarding my project and helped me up
to my satisfaction .He guided me about banking frauds and
scams .The various types of banking frauds happens in banks.
And various challenge which are there in banks regarding bank
frauds. He also told me about the banking strategies to deal
with frauds. He told me that there are fraud experts in banks to
prevent the frauds and security system of bank. He also told me
the punishment for the persons who does bank frauds. He told
me about new types of banking frauds. Bank manager told me
that how they take steps to minimize banking frauds and
scams, what techniques they use, etc. According to him there
are many techniques and ways to minimize the banking frauds
and scams. It was good experience for me as now. I have come
to know the practical aspects regarding my topic Frauds and
scams in Banking Sector.
 72

CONCLUSION
Bank frauds are done to make money by cheating the banks.
There are several loopholes in banking system that has been
used by fraudsters. The number of bank frauds has been
increasing year on year along with that, RBI also engaged in
making the banking system accurate and secure. IT in banking
sector is much more advanced than the traditional banking.
Online transactions are widely used than the manual
transactions. Due to the frauds the profit of the company is
getting affected. Bank fraud is the use of potentially illegal
means to obtain money, assets, or other property owned or
held by a financial institution, or to obtain money from
depositors by fraudulently posing as a bank or other financial
institution. Bank frauds concern all citizens. It has become a big
business today. Bank frauds are the creation of professional
criminals, desperate customers or of errant bankers or their
collusion inter se. However the prima donna in the drama is the
insider or the banker. He opens the purse. He is often the
target and at times the tool. Occasionally, he is the victim of the
temptations. There are internal factors and external factors
which are responsible for banking frauds and scams. There are
two categories of banking frauds i.e. banking frauds done
insiders and frauds done outsiders. There are some effects of
these frauds on banks like public loss confidence in banks, loss
of bank money, it helps to increase the operating cost of banks,
low asset quality, reduced the amount of profit, creditability
etc. But there are also bank rules to prevent the banking frauds
and scams.
 73

The Reserve Bank of India (RBI) has drawn up new rules for
banks aimed at preventing frauds and irregularities. Banks take
actions to minimize these bank frauds. There are always new
challenges in banking sector but they are competent to deals
with that challenge.
 74

ANNEXURE

Name of the Bank: ……………………………………..

Gender:
1. Male 2. Female

Qualification:
1. Under Graduate 2. Graduate
3. Post Graduate 4. Working

1.. Do you think that frauds and scams are happening in banks?
1. Yes 2.No

2. Do you think that banking frauds and scams are harmful to

the society?
1. Yes 2. No

3. Is frauds and scams have ever occurred in this bank?

1. Yes 2. No

4. Are you satisfied with the measures to preventing the

banking frauds and scams?
1. Yes 2. No

5. Do you have some steps to protect your bank from the

banking frauds and scams?
1. Yes 2. No
 75

6. Do you think that scams and frauds deal in banks are

connected to the politics?
1. Yes 2. No

7. Do you have the fraud experts in your bank to monitor the

transactions to protect your bank from criminal activities?
1. Yes 2. No

8. Is the banking frauds affects on the performance of the

banks?
1. Yes 2. No

9. Does the bank frauds and scams affects the goodwill of the
banks?
1. Yes 2.No

10. Does your bank follows the RBI regulations regarding the
banking frauds and scams?
1. Yes 2. No

11. Is there any penalty for the person who does the banking
frauds and scams?
1. Yes 2. No

12. Do you think that banking frauds and scams are happen
because of the poor management?
1. Yes 2. No
 76

13. Does the recruitment method have a direct link with the
rate of frauds and scams in baking sector?
1. Yes 2. No

14. Can banks ever operate without an incidence of frauds and

scams?
1. Yes 2.No

15. Do you think that because of the banking frauds and scams
the profit of the bank is decrease?
1. Yes 2.No