Indian Banks incur losses of Rs 70k Crores due to frauds in the Last Three Fiscals

It seems that the bad days for the banking sector are far from over and it has been confirmed with the reply given by the Minister of State for Finance, Shiv Pratap Shukla at the Rajya Sabha. Quoting the RBI figures, he has informed the upper house that the Indian banks incurred a total loss amounting to Rs 70000 crores in the last three fiscals due to frauds.

This information has been compiled on the basis of the year of reporting of the frauds and not the year in which such frauds had actually taken place due to sanction of the concerned credit facilities.

In terms of year-wise analysis, the year 2017-18 saw total loss of Rs 36694 crores whereas the figures for 2015-16 and 2016-17 were Rs 16409 crores and Rs 16652 crores, due to the frauds reported by all the Scheduled Commercial Banks in the country.

Why such frauds have taken place in India?

It is very much disturbing that the public sector banks, known as the backbone of the Indian economy, are the worst affected in such cases of frauds especially in the last financial year. According to a RTI Reply made available in May 2018, 21 PSBs have reported losses of Rs 25775 crores due to frauds in the year 2017-18. Among all the Public Sector Banks, Punjab National Bank has reported a total loss of Rs 6461.13 crores, the highest, in the Financial Year 2017-18.It is very important that the root cause of such incidents are understood and taken care of. According to the reasons cited by the government, the main reasons that can be attributed to such losses are wilful default and loan frauds. Apart from these reasons, corruption and aggressive lending practices are also responsible for such frauds in the Indian Banking system.

Among all the Public Sector Banks, Punjab National Bank has reported a total loss of Rs 6461.13 crores, the highest, in the Financial Year 2017-18.It is very important that the root cause of such incidents are understood and taken care of. According to the reasons cited by the government, the main reasons that can be attributed to such losses are wilful default and loan frauds. Apart from these reasons, corruption and aggressive lending practices are also responsible for such frauds in the Indian Banking system.

The banks should also stop aggressive lending practices in order to stop getting defrauded by defaulters, according to the report of the RBI.
It is very important that the root cause of such incidents are understood and taken care of. According to the reasons cited by the government, the main reasons that can be attributed to such losses are wilful default and loan frauds. Apart from these reasons, corruption and aggressive lending practices are also responsible for such frauds in the Indian Banking system.

What is the implication of such frauds in banking system?

Any fraud in the banking system is detrimental to the health of the economy of the concerned country. For any fraud, a bank has to write off the whole asset from its balance sheet and they are not going to get any repayment from the borrowers. Banks will have to make provision for such loans out of their profits thereby eating into their profitability. Given the fact that Public Sector Banks are the most affected, it is public money we are talking about and ultimately, it comes out of the tax we are paying to the government.

Any fraud is bad enough to erode the trust of the customers on the banking system of the country, thereby completely jeopardizing the financial inclusion goals of the government. Moreover, in the fiercely competitive banking sector of our country, it is very difficult for a bank to regain its lost glory once the trust is compromised.

It is high time that the government takes corrective measures in order to control any kind of wrongdoing in the banking system of the country. It should stop interfering too much in the business decisions of the public sector banks, from now onwards. Moreover, the Economic Offenders Act that came into force in 2018 should be implemented strictly without any vested interests so that it may act as a deterrent in the long run.