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Banks have underestimated financial crimes: Survey

Overvaluation and diversion of funds were reported to be the top four types of fraud.

ET Bureau|
Updated: Nov 27, 2018, 10.28 AM IST
MUMBAI: About 84 per cent of top-level bankers and financial executives say that banks have underestimated the problem of financial crimes leading to an increase in fraudulent cases over the past two years, according to a survey conducted by Deloitte.

The survey conducted on a sample of 43 C-suite executives and stakeholders from private, public, foreign, cooperative and regional rural banks in India also pointed to an increased spending to develop better anti-financial crime framework, with about 54 per cent of the respondents saying that investments over the next two years to prevent fraudulent cases have been planned in their respective organisations.

Areas such as upgrading technology to combat cybercrime (60 per cent), fraud detection and monitoring systems (53 per cent), early warning systems to help detect red flags (53 per cent), artificial intelligence in fraud detection (47 per cent), fraud risk assessment (40 per cent) and customer education/awareness (40 per cent) were given highest priority to build a better Fraud Risk Management (FRM) system.

“While banks seem to have the basic elements that make an FRM framework strong on paper, what is missing are the practical key elements that could help take that framework from being good, to great and efficient,” said KV Karthik, Partner – Forensic, Financial Advisory, Deloitte India. Fraudulent documentation, cybercrime, overvaluation or nonexistence of collateral and diversion of funds were reported to be the top four types of fraud experienced by the banks according to the respondents.

Despite most banks investing a sizeable proportion of their resources in fraud risk management systems, the reasons identified for an increase in fraud incidents are: a lack of know-how about the technology, lack of tools to identify the potential red-flags and pressure environment to meet targets.

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