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Cyber Fraud in Banking: Key Takeaways from Jaiprakash Kulkarni Case
Fraud in finance and banking is known. The Jaiprakash Kulkarni & Anr. Vs. Banking Ombudsman & Ors. case highlights the increasing risks of cyber fraud faced by individuals and companies. Here’s an analysis of the key aspects of the case law.
On October 1, 2022, unauthorized beneficiaries were added to the petitioners' bank account without any OTP notification. The following day, ₹76,90,017/- was debited through multiple transactions. The petitioners promptly reported the incident to the Cyber Cell at Worli Police Station, Mumbai and blocked the associated SIM card. On October 3, 2022, they formally notified respondent no.2 (the bank) and filed an FIR with the Cyber Crime Police Station. Subsequently, the petitioners requested a Security Incident Report from the bank and sought an update on the refund process as per RBI’s Customer Protection Circular dated July 6, 2017. Despite follow-ups, the bank neither refunded the amount nor provided a satisfactory update. Consequently, the petitioners filed a complaint with the respondent no.1 (banking ombudsman) on October 12, 2022, which was rejected on January 10, 2023, on the grounds that the transactions were completed with valid credentials known only to the account holder.
Issues involved
1) Unauthorized addition of beneficiaries and subsequent transactions from the petitioners' bank account without any OTP being received, resulting in a financial loss of ₹76,90,017/-.
2) The petitioners claimed that no OTP was received for adding the beneficiaries and that respondent no.2 (the bank) failed to adhere to RBI guidelines on limiting customer liability in unauthorized electronic banking transactions .
3) Banking ombudsman’s rejection of complaint , disregarding the absence of OTPs and the unauthorized beneficiary additions.
4) The petitioners sought relief by quashing the ombudsman’s decision and directing respondent no.2 to refund the debited amount along with interest and compensation as per the RBI Circular.
RBI Regulations and Consumer Protection
To address these issues, the Court relied on several important rules and legal principles:
1) RBI Circular on Customer Protection (July 6, 2017): This circular is crucial in determining the liability of customers and banks in unauthorized electronic banking transactions. It mandates that banks must compensate customers for losses if the breach is due to third-party fraud and the customer has reported the fraud promptly without negligence on their part. The onus is on the banks to prove customer negligence or involvement.
2) Consumer Protection Policy (Unauthorized Electronic Banking Transactions) : Under this policy, customers are not liable for losses due to third party breach, if they report unauthorized transactions promptly and there is no negligence on their part.
3) Two-Factor Authentication (2FA): This security measure requires two separate forms of identification (typically something the user knows and something the user has) to authorize a transaction. Failure to implement 2FA can be seen as a security lapse on the bank's part.
Applying the above rules to the facts, the Court scrutinized the actions and responses of both the petitioners and the bank:
1. Failure in Two-Factor Authentication : On October 1, 2022, unauthorized beneficiaries were added to the petitioner's account without any One-Time Password (OTP) or notification sent to his registered mobile or email. The next day, ₹76,90,017 was fraudulently debited through multiple transactions. The Cyber Cell’s investigation confirmed that no OTPs or transaction alerts were received by the petitioners, directly contradicting the bank’s claim that the transactions were authenticated through valid credentials and 2FA.
2. Petitioners’ Prompt Action : Upon discovering the fraudulent transactions, the petitioners promptly reported the incident to both the Cyber Crime Police and the bank on October 3, 2022. They lodged a First Information Report (FIR) and persistently sought redress from the bank, adhering to the RBI's guidelines for reporting unauthorized transactions. This quick reporting played a critical role in establishing their non-negligence and ensuring their claim for compensation.
3. Inadequate Inquiry by the Banking Ombudsman : The Court highlighted the lackluster approach of the banking ombudsman in investigating the fraud. The ombudsman concluded there was no deficiency in the bank’s service without thoroughly examining whether the transactions were truly authorized by the petitioners. The ombudsman’s reliance on the bank’s assurance of 2FA being used, despite contrary evidence from the Cyber Cell, was deemed insufficient and negligent.
4. RBI’s Support on Zero Liability : The RBI’s affidavit supported the stance that in cases of unauthorized transactions due to third-party fraud, customers should have zero liability, provided they report the incidents promptly and have not contributed to the breach through their actions. The Court found that the petitioners had acted diligently and there was no evidence of negligence or collusion with the fraudsters.
Author's Observations
The Bombay High Court’s decision in Jaiprakash Kulkarni vs Banking Ombudsman, Bank of Baroda & Others underscores the paramount importance of robust security measures and diligent customer protection practices in the banking sector. The Court quashed the banking ombudsman’s order and directed the Bank of Baroda to refund the fraudulently debited amount of ₹76,90,017 to the petitioners, with an interest of 6 per cent per annum from October 2, 2022, until the payment date.
This ruling emphasizes several critical points:
1. Customer Protection: The judgment reaffirms the RBI’s guidelines on zero liability for customers in cases of unauthorized transactions due to third-party fraud. It is a strong reminder that customers must be shielded from losses incurred due to security lapses beyond their control.
2. Bank’s Accountability: The case highlights the necessity for banks to enforce stringent security protocols like 2FA effectively. Any lapses in these measures can expose banks to significant liabilities and damages.
3. Prompt Reporting and Vigilance : Customers are encouraged to report unauthorized transactions promptly. This timely action is crucial in limiting their liability and securing their rights to compensation under the RBI’s framework.
4. Need for thorough Investigation : The Court criticized the banking ombudsman’s inadequate investigation, stressing that thorough and diligent inquiries are essential when addressing claims of unauthorized transactions. This sets a precedent for more rigorous scrutiny in similar future cases.
We believe that this judgment is a crucial step in enhancing the protection of customers in the digital banking ecosystem. It sends a clear message to financial institutions about the importance of robust security measures and the necessity of transparent and thorough handling of fraud claims.
For customers, it reinforces the importance of vigilance in monitoring account activities and reporting suspicious transactions immediately. The court's decision serves as a significant precedent, potentially guiding future cases involving cyber fraud and unauthorized banking transactions.
As the digital landscape continues to evolve, the principles laid down in this case will be instrumental in shaping the policies and practices surrounding customer protection and cyber security in the banking industry.
About the author: Vishwas Chitwar is an Associate at NovoJuris Legal.
Chitwar authored the article with inputs from Sharda Balaji, Managing Partner, NovoJuris Legal.
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Cyber Fraud in Banking: Key Takeaways from Jaiprakash Kulkarni Case Author: Vishwas Chitwar is an Associate at @novojuris Legal. https://t.co/VlWHiCsATh — Deals & Firms by Bar & Bench (@dealsandfirms) July 27, 2024
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Bank frauds in the digital banking system today and its impact on Indian economy : a case study and
This article has been written by Kumar Rajiv Ranjan, pursuing a Diploma in General Corporate Practices from LawSikho . The article has been edited by Amitabh Ranjan (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho)
Table of Contents
Introduction
While scrolling on social media, I came across a hilarious but thought-provoking message of Stand Up Comedian “Raju Srivastava”. The Quote was “I wish to lead a life of an anonymous person. Just waiting for my bank loan to get approved”. A bit satirical but there cannot be a more apt description of what is happening around us today and the helplessness of a common man. Bank frauds, siphoning out money through loans and subsequent default by corporate, online frauds and complete helplessness of authorities to make the recoveries effective or punishing the guilty persons is what we are witnessing every day.
Bank frauds have now become such a routine feature today that many banks are fast losing the confidence of the people as the most secure way of storing money. YES BANK case , PNB case or Nirav Modi Case , Vijay Mallya cas e are some of the glittering examples. And the case which has as recently as in August 2021 rocked our economy yet again is another plus 1000 crore embezzlement of funds by VMC Systems Limited and Punjab National Bank [PNB] is again at the central stage. The situation is day by day becoming gloomier and we do wonder whether there is any light at the end of a long drawn-out tunnel.
The RBI Annual Report 2019-20 , has painted a very grim picture of the Indian Economy’s current state. It has been stated that despite the best efforts by the Government, the amount involved in frauds has gone up by a whopping figure of 159%. The RBI report further stated that during Financial Year 2019-20, banking sectors reported 8707 frauds involving a total of Rs 1.85 Trillion as against 6799 cases during 2017-18 involving 71543 Crores. The situation only slightly improved in 2020-21 as the value of the fraud was reported to be at Rs. 81901 Crores as per RBI Annual Report 2020-21.
But the corporate frauds with active connivance of banking personnel are just one mode of embezzlement of funds. With the banking operations becoming more and more digital, and physical forms of banking transactions getting substituted by digital and electronics mode, the fraudsters are every day devising new methodologies for siphoning out precious public money/hard-earned money of common people.
We are witnessing ATM frauds through the cloning of ATM Cards. Fraudsters are often successful in deciphering the PIN or SECURITY CODE. System hacking has become too frequent and if what is happening today is not arrested, soon the banking structure may collapse and the entire economy shall be doomed. We have already witnessed how YES BANK has failed and also witnessed how PNB is struggling. Today we are sitting atop a volcano, uncontrolled siphoning of money shall have a catastrophic effect and it may be sooner than later.
To analyze what is happening around us, let us first analyze what changes have been brought into the banking system in the new digital world.
Evolution of banking structure: from physical to digital
The entire banking system has undergone sea changes during the last twenty years. Gone are the days of long queues at bank counters, cumbersome processes, physical transactions etc. Our banking system has quite successfully and most efficiently embraced the digital world. In the era of e-banking, new modes of transactions like RTGS [ Real-time gross settlement],NEFT [National electronic fund Transfer], ECS [Electronic cleaning services], EFT [ Electronic Fund Transfer] have emerged. Bank passbooks have now been replaced by NET BANKING. Physical cheque books have now been replaced by e-cheques.
Bills of exchange, promissory notes being a significant instrument of money transfer under Negotiable Instruments Act are fast becoming obsolete. Fund transfer has now become fully electronic with modes like POS transactions, online transactions, Debit and Credit Cards, ECS mandate, transfer through ATM channels embracing the banking system. With the fast development in electronics and computer hardware as well as software, various user-friendly apps like SBI YONO , PAYTM , BHIM UPI have been embraced by the Banking Sector. Banking transactions have become fast beyond imagination. Now the entire world has come under your fingertips with USER ID and PASSWORD mode of banking transactions becoming our everyday routine.
But the more technologies we are embracing, we are also witnessing its abuses in the digital world with the fraudsters developing more and more skills and technologies for duping banks as well as our hard-earned money. Events of ATM Cloning, deciphering PIN and passwords, phishing or fraudulently influencing customers to give their own information and thereafter duping money from their account is happening almost every day. These frauds are still more individual-centric and do not have much impact on the economy as a whole.
However, more organized and systemic banking frauds, that we are witnessing, are in the corporate world with the active connivance of the banking personnel which is eating into our economic systems like white ants and cancers and required to be paid more attention to. Hacking of the system is another big challenge that is required to be addressed considering the fact that Artificial Intelligence [AI] is fast becoming the new watchword in the digital world and we are required to equip ourselves accordingly otherwise the concerned banking sector may go the NOKIA WAY . Not long ago, NOKIA was the most prestigious brand in the mobile world but they were not receptive to the changes taking place in the electronics world and soon they were outsmarted and outscored by APPLE, Samsung and scores of Chinese mobile companies with highly advanced systems and highly user-friendly interface.
As a result, NOKIA went out of the market. So, in the fast-changing electronics and computer world, the banking sector management should be highly receptive to the changes taking place around them and exhibit sufficient flexibility to survive, adopt the new technologies and remain competitive. However, any mega banking fraud due to hacking of the system or use of Artificial Intelligence has not been reported as yet.
Non-corporate banking frauds in digital world: an analysis
As stated in the preceding paragraph, banking frauds in the digital world today may be categorized into two heads:
- Non-corporate e-banking frauds
- Corporate banking frauds
Non-corporate e-banking frauds are not as dangerous as far as their impact on the economy of the country is concerned. It is more individual-centric. For the persons, however, suffering such damages at the hands of the fraudsters, the impact may be catastrophic. Considering the criminality of such acts, these are required to be also handled strongly as per applicable criminal laws to send a strong message. Some types of e-banking frauds which do occur regularly in our everyday life are being enlisted below:
1. Stolen or lost credit/debit card and its abuse by fraudsters.
2. Cloning of debit/credit cards.
3. Phishing or fraudulently influencing customers to give their own information and thereafter duping money from their account.
4. Stolen PIN numbers and banking passwords
5. Hacked accounts and mobile apps
6. Stolen CVV and OTP number.
7. Online shopping frauds. In such cases, fraudsters set up fake online shopping platforms.
8. Luring people to share their confidential information like AADHAR details, ATM PIN, Account password e.t.c. in the name of some attractive gifts or lottery and duping money thereafter.
But, as I have stated above, the impact of these frauds are not as heavily felt as in cases of fraudulence by body corporate as in the cases listed above, mostly the impact is individual-centric and the amount involved is not as big as in cases of corporate frauds and corporate defaults.
Corporate banking frauds in digital world: an analysis
As I have stated in the preceding paragraphs, it is the Corporate Banking frauds that are more challenging as their impact on our economy and banking system is catastrophic. The collapse of YES BANK is one such example. Normally such frauds do happen in the form of bank loans or abuse of banking instrumentalities with the active connivance of some insiders in the banking systems. For such frauds, the Corporates use their guile and professional expertise as they present before the banking authorities highly inflated financial statements which are accepted by the banking authorities on its face value without much verification.
The Satyam case and misdeeds of its CEO B Ramalinga Raju is a big example of how an organization’s financial statements can be altered to present a very rosy picture while the actual scenario was much different and this case is a big blot on corporate governance in India. I would also consider some big names in the world of financial sectors, Chartered Accountants, Cost Accountants, Company Secretaries equally responsible as all these financial statements are duly audited and signed by them.
These inflated statements are used to obtain Loans running into multi-crores of Rupees or some other banking instrumentalities like BG [Bank guarantee], LoC [Letter of Credit/Letter of Comforts] e.t.c. which are abused by such corporate houses for furthering their business goal and at the same time, they easily become defaulters sending the lending bank into a deep mess as they are left with not much grounds to recover.
Mostly, it is the Public Sector Banks [with an exception to Axis Bank and Yes Bank in few cases] which found itself at the receiving end and thereafter, the battle in the form of filing of FIRs, investigation by CBI, long extended battle in courtrooms begins while the fraudster Corporates peacefully enjoy their time, mostly in some other country of their choice and ably assisted by a team of high profile lawyers and financial experts in court room’s battles.
To understand the modus operandi of these corporations, let us examine a few cases in detail.
Case study no.1 : the case of VMC systems limited, Hyderabad
The corporate world was rocked in early August 2021 when a news item appeared that the Enforcement Directorate arrested Vuppalapati Hima Bindu, Managing Director of VMC Systems Limited, Hyderabad in connection with the 1700 crores Punjab National Bank [PNB] loan fraud case. This case was also a classic example of bureaucratic latches and delays as it was in September 2018 when CBI registered an FIR against the company and V Hima Bindu, Rama Rao and Ramana charging them with criminal conspiracy, cheating and forgery but the first arrest of Hima Bindu was made nearly three years later in Aug’2021.
VMC systems Limited, Hyderabad is a telecom equipment manufacturing company based in Hyderabad which was incorporated in February 1997 with an authorized share capital of Rs 65 Crores and paid-up capital of Rs 50 Crore. In 2018, when the case was registered, it had pending dues of Rs.33 Crores only which was to be received from BSNL but the Company declared this figure at 262 Crores which was accepted by PNB authorities without proper verification.
The company had claimed certain receivables from other private companies also were found out to be false. These inflated and false financial figures were used by VMC Systems Limited to secure loans from PNB and a consortium of some other banks. At the time of filing of the charge sheet by CBI, VMC Systems owed Rs. 539 crores to PNB and 1207 Crores to a combination of State Bank of India, Andhra Bank and JM Financial assets Reconstruction Company. VMC Systems defaulted on repayment of loans and the outstanding liability has now swelled to Rs.3316 Crores which is to be paid by the defaulting Company to the consortium of Public Sector Banks.
CBI enquiries further revealed that VMC circulated loans to various related entities to inflate its books e.g., PISL, a related entity was given 3% commission from all receipts from BSNL even though it did not have any role in state run’s BSNL tenders.
It was also found that VMC had obtained various letters of credits [LoCs] worth Rs. 692 Crores in the name of fake/dummy entities which were subsequently transferred and passed over to other entities. The Company had also created false/exaggerated operational revenues by generating fake sales/ purchase invoices through companies controlled by their Directors/family members to dodge the banks. A part of the proceeds was also remitted by V Hima Bindu to overseas entities controlled by her family members.
The investigation still continues.
Case study no.2: the case of Nirav Modi and Mehul Choksi: PNB scam 2018
Nirav Modi , once a big name in the Diamond business, is a fugitive businessman today charged by Interpol and the Government of India for criminal conspiracy, criminal breach of trust, cheating, dishonesty, money laundering, and breach of contract. The fraudulent manner in which Punjab National Bank [hereinafter referred to as PNB] was cheated rocked the nation in 2018 and today the fraud is estimated at over USD 2 Billion. This PNB Scam is related to the issuance of fake Letters of Undertaking [LoU] by the Bankers at PNB’s Brady House Branch in Fort, Mumbai. These LoUs were opened in favor of branches of Indian Banks in overseas destinations for the import of pearls and other costlier stones for a period of One Year even though the RBI had prescribed a total time period of 90 days only from the date of shipment. But these guidelines were bypassed by the overseas branches of Indian Bank and they did not even share what documents/ records were made available to them by the diamond merchant/his firms at the time of availing credit guarantee from them.
These loopholes in the working of the Banking System were wonderfully exploited by Nirav Modi, his uncle Mehul Choksi & their team as they successfully obtained a total of 1212 LoUs within a period of 74 months from his first fraudulent guarantee which he obtained from PNB on March 10, 2011.
For the purpose of this fraud, PNB employees, who had joined hands with Nirav Modi, had abused the international banking financial communication system SWIFT from PNB banking network to send messages to overseas branches of other Indian banks, including Allahabad Bank, Union Bank of India and Axis Bank on fund requirements for which the banking personnel used their allotted SWIFT Password but the transactions were never recorded in the core system of the Bank. As a result, the top management of PNB remained oblivious of what was going on.
Further, Nirav Modi obtained LoUs mostly in favour of dummy firms that were operating from the British Virgina Island and the fund received through fraudulent LoUs was transferred into their account.
Somehow, the fraudulent manner of fund withdrawal came to the notice of top management of PNB and they filed a formal FIR with CBI on 29 th January 2018 admitting a bank fraud worth Rs 2.8 Billion making Nirav Modi, Ami Modi, Nishal Modi and Mehul Choksi, all partners of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamond, as the Prime accused.
The matter is under investigation by CBI, ED and also by INTERPOL and through subsequent investigation, the value of the scam has now ballooned to over Rs. 14000 crores.
Mr Nirav Modi is still evading his arrest and we are in the middle of a long extended legal battle for his extradition to India.
Case study no. 3: the case of Vijay Mallya
Vijay Mallaya , once a ROCKSTAR business Tycoon is today a fugitive businessman charged with a bank loan default case of over 9000 Crores which involved his now-defunct Kingfisher Airlines. This is rather a simpler case where a consortium of Banks, led by the Public Sector giant, State Bank of India, kept on extending loans without the exercise of due diligence as a result of which the loan amount swelled to over 9000 Crores and Vijay Mallya’s UB group [ United Breweries Holding Limited] become a defaulter. The problem compounded with the failure of Kingfisher airlines and finally the Consortium of Banks filed a criminal case against Vijay Mallya.
The lack of wisdom by Banking authorities reflected from the fact that the news of business failures of Vijay Mallya kept appearing in newspapers since early 2000 but, the Banks, a total of 17 in number, kept lending loans to him to meet his need of extravagant business expansion. From the loans obtained, he bought Deccan Airlines and merged it with Kingfisher Airlines but the Project turned out into a misadventure. At one point in time, the company ran out of cash and was not able to even pay salaries to its employees.
His Company Kingfisher also held back service tax as realized from passengers, PF recovered from the employees, Income Tax recoveries made at source as it was left with no money to deposit the same either with IT Department or with PF authorities. At one point in time, SBI declared Kingfisher Group Bankrupt but other Banks kept extending Loans to him and one attributable reason according to many Financial Observers is the fact that he was also a two times Member of Parliament in the upper House and had very close connections with the power centres in the government, both in his state in Karnataka as well as at centre in New Delhi.
This case is also being investigated by CBI and ED but Vijay Mallya himself fled to the UK. In June’21, ED issued a statement stating therein that the Banks had recovered Rs 1357 Crores by the sale of the shares which were attached under the Prevention of Money Laundering Act [PMLA] by ED. Like Nirav Modi, he is also facing an extradition case in the UK.
Case study no.4: Yes Bank fraud case and DHLF
The rise and fall of Yes Bank is a perfect example to demonstrate what damages the deadly tentacles of mismanagement and banking frauds may cause to the Banking Sector. It is yet again almost the same story. Uncontrolled extension of loans which became bad loans, the parties becoming defaulters very coolly and the banking system collapsing as it failed to garner sufficient capital for its retrieval. The Yes Bank was incorporated in November 2003 and it started its operation in August 2004. Very soon, it became one of the leading Private Sector Banks. From its very inception, it started extending corporate loans lending aggressively to the corporate houses by compromising on prudence.
This aggressive lending policy led to NPA [Non Performing assets] stress from as early as 2015 with the majority of the loans extended becoming BAD LOANS as the Corporate debtors started defaulting. Major debtors like Reliance Group led by Anil Ambani have now become bankrupt, Cox and Kings failed and DHLF, which has a lion share of the Bad Loan, became serious defaulters. As per the reports of the ED, YES BANK disbursed nearly Rs.20000 Crores of Bank Loans to Corporates without following the RBI Guidelines. The Bank bought debentures from DHLF worth Rs.3700 crores and in return thereto, DHLF booked loans to a Company owned by the daughter of Bank’s owner Rana Kapoor against a mortgage worth Rs 40 Crores. This has been considered by CBI as bribery given by DHLF to Rana Kapoor and his family on a quid pro quo basis and a case was registered by CBI in 2020 for alleged cheating, fraud, criminal conspiracy in sanctioning of loans by YES Bank in exchange for receiving bribes from DHLF promoters Dheeraj and Kapil Badhwan.
All this suspicious dealing finally caused the exit of Mr. Rana Kapoor from YES Bank at RBI instructions in 2019. Presently, all operations of YES BANK are under serious restrictions as imposed by RBI.
And the list goes on and on and on as there are many such cases.
Defining fraud from a legal angle
Now, to find out the legal remedies, first of all, we shall have to understand what banking fraud means. Such frauds are an outcome of transactions wherein one party by fraudulent and dishonest means wrongfully gains and the other party wrongfully loses. It is different from misappropriation or embezzlement. In the case of the State of Maharashtra through CBI Vs Vikaram Anantrai Doshi & others , it was observed that banking frauds cannot be put in the same bracket as an individual or personal wrong rather it is a social wrong. The Indian Penal Code, 1860 does not define the term “fraud” exclusively however certain provisions of the said Code are always applied while handling bank frauds. The Indian Contract Act, 1872 handles the subject of Agreements and Contracts and its Section-16 coined the term of “influence in contracts” which can be considered as a lesser degree of fraud but in an extension of very high valued bank loans to big corporate personalities like Vijay Mallya, influence and political clout play a very important role.
In Oriental Bank Corporation Vs John Fleming , the Court categorically analyzed the concept of constructive fraud. Surprisingly, the Banking Regulation Act, 1949 does not deal with banking frauds directly which is a big deficiency of the act and the fraudsters are taking advantage of these big loopholes. The Information Technology Act, 2000 introduced a new domain of technology-related offences and Section 94, of the Act also amended certain provisions of RBI Act, 1934 and the concept of digital forgery, unauthorized access to the computer networks, data alteration, skimming and online identity theft and impersonation were included. Payment and Settlement Systems Act 2007 was also introduced for controlling and curbing online transactions frauds.
Conclusion and suggestions
In India, the e-banking mode of transactions is maturing slowly but steadily. It is also cost-saving and time-saving. The banks are obliged to maintain the secrecy of customers’ accounts and RBI also provides regulations and guidelines for reducing the risks of hacking but many a time, these guidelines are not taken seriously, thus resulting in fraud. The general public deposits their money for security purposes and this trust is broken whenever such fraud occurs. However, as I have repeatedly stated, the dimension and impact of individual-centric e-banking frauds are not as catastrophic. Except, some personal losses, it shall not affect the Indian economy much. Still, it is a criminal offense that is required to be dealt with strongly as per the criminal laws to control and curb this growing menace. Both Banks and the individual concerned are required to be extremely cautious and conscious not to fall prey to such fraudsters. Banks shall be also required to regularly update their security control system to check any unauthorized entry into their systems. The customers and general public shall be also required to keep altering their security password at regular intervals and in no case, it shall be shared with any outsider.
However, despite all precautions and taking recourse to different online security systems, if someone still suffers a banking transaction fraud at the hands of the fraudster, the matter should be forthwith reported to the Bank as well as the cyber cell of the police so that appropriate action for nabbing the fraudster may be taken by the Police and Banking Authorities should also work towards improving the existing securities.
But, the bigger menace is the corporate banking frauds which are extremely damaging as the value of a single fraud alone may be around 1000 Crores. In 2021 alone, 13 bank frauds, each of a value of more than 500 Crores, were reported by the State run Banks to have taken place up to June’21 itself as per a written reply tendered by Union Minister for Finance before Rajya Sabha [ Upper House]. It was further stated in the reply that such types of cases were 79 in 2019-20 and 73 during 2020-21.
In all these frauds, almost similar methodology is adopted; that is forged financial statements, use of forged instruments, manipulated books of accounts, borrowing of funds against fictitious accounts, unauthorized credit facilities, fraudulent foreign exchange transactions and managerial failures at the stage of credit sanctions/disbursement. Considering all these, some preventive measures, tightening of administrative setup, enactment of new rules e.t.c. would be required and a few suggestions are recorded herein below:
1. For handling e-banking frauds of smaller magnitude and for handling online transaction offences, there are now separate provisions under the Payment and Settlement Systems Act-2007 but to expedite the settlement process with legal force, it is suggested that Section-25 of Payment and Settlement Systems Act-2007 may be linked with Section-138 of NI Act which handles cheque bounce cases. Additional provisions may be included allowing electronic mode of communication of demand notice by Payee/Holder in due course to the Drawer, electronic filing of complaints before the competent court in cases of failure of payment by the drawer to the payee either in physical or electronic mode. Appeal against conviction may be filed in electronic mode and Court proceedings may be also conducted electronically with provisions for online tracking by complainant/ defendant through the case and individual-specific password.
2. Better professional management and appointment of professional experts to handle business transactions of high values may be given a thought.
3. There are also shifts in focus from social banking to profit-making leading to more and more corporate business financing but as our experience of YES BANK speaks, such uncontrolled lending is required to be handled with care and some prudence is needed.
4. There must also be an upper limit of lending linked with paid-up share capital and free reserve of the company to avoid the loan becoming non-recoverable in the event of default by the debtors. The provisions of the Companies Act, 2013, RBI Guidelines may be accordingly modified thereby putting a cap on external borrowing.
5. The legal system is also required to be made more robust to handle bank fraud cases. There are a large number of legislations but still not a single legislation to handle bank fraud cases alone. The parliamentarian should pay attention to this aspect.
6. The Vigilance System has to be strengthened as it has been observed that a number of bank fraud cases have taken place due to the involvement of internal employees. Penal provisions and penalties are required to be made more stringent.
7. The institution of Independent Directors may be strengthened with appointment only from the Data Bank of Registered Professionals maintained by IICA [ Indian Institute of Corporate affairs.
8. Penal actions provisions may be included in our existing laws for taking actions against Auditors/ Auditing Firms/Chartered Accountancy firms/Company Secretaries/Financial Experts who play a major role in presenting inflated and fraudulent Financial Statements of the Companies owned by Corporates enabling them to borrow from the outside market including Banks an unreasonable amount without having the capacity to repay. This uncontrolled borrowing and lending have to be controlled very strictly.
9. Compulsory auditing at the bank level also of the financial statements submitted by the Prospecting Debtors before any loan is extended. Guidelines in this regard have been issued by RBI/Govt of India after PNB fraud was unearthed in 2018.
10. Examination of every NPA valued at more than 25 Crores and the report to be kept as a reference point before extending a second credit/ loan to the Corporate Houses.
12. Revision in the Companies Act, 2013, issuance of Fresh SEBI Regulations and other measures by the Government of India making the Penal Provisions stringent.
13. In every insolvency proceedings before NCLT, the recovery of the Principal amount has to be considered paramount by the Judicial System to lend support to our banking system.
14. Other Statutory Measures. Introduction of Fugitive Economic Offender Act, 2018 was a welcome step as this Act was introduced to deter economic offenders from evading the process of law by remaining outside the jurisdiction of Indian Courts as we are witnessing in the cases of Nirav Modi and Vijay Mallya etc.
15. Development of a scientific system for early detection of fraud cases. In the annual reports of RBI, it has been stated that the average lag between the date of occurrence of frauds and their detection by banks and financial institutions was 24 months during 2019-20. This lag time was even more in cases involving a huge amount of money which is a matter of huge concern.
These are some of the suggestions to curb and control the menace of Corporate Bank Frauds which is fast eating up into our economy and the collapse of YES Bank, the failure of Kingfisher Airlines and the woes suffered by their employees are just a few examples of howdamaging it could be if the entire banking sector collapses due to cash crunch as most of the loans extended to Corporate houses are fast becoming NPA[ Non-performing Assets].
Bibliography
1. RBI Report 2019-20 as published in Business standards by Subrata Panda & Anup Roy.
2. RBI Report 2020-21 as e-published in livemint.com
3. VMC Systems Case and arrest of its MD Hima Bindu by ED
as published in Indian Express dated 06 th Aug’2021
4. PNB Scam and Nirav Modi: From Business Standard and Wikipedia
5. Vijay Mallya Case: As published in Business Standard
6. YES BANK SCAM: As published in online Law Journal NJLRII
7. 13 fraud Cases over 500 Crores each reported by Govt Banks
till June’21:Says Finance Minister- A digital News published in
ET Now Digital dated 28 th July’21.
8. The SATYAM SCANDAL: A Case Study as e-published in Lexforti
Legal News Network dated April 23’ 2020
9. “Why did NOKIA Fail…….” By Brand Minds as published in Magazine MULTIPLIER
10. Oriental Bank Corporation Vs John Fleming: A case study by Arun Kumar
published by Lawkaran Consultancy
11. State of Maharashtra through CBI Vs Vikram Anantrai Doshi
& others: From Indiankanoon.org
12. The Contract Act, 1872
13. Negotiable Instruments Act, 1881
14. India Penal Code, 1860
15. RBI Act, 1934
16. Banking Regulation Act, 1949
17. Information Technology Act, 2000
18. Fugitive Economic Offender Act 2018
19. The Companies Act, 2013 & some other references not quoted.
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Bank frauds up nearly 300% in last two years, digital frauds up 708%: rbi.
Fraud cases in Indian banks surged to 36,075 in FY24 from 9,046 in FY22, a nearly 300% increase, while the amount involved dropped by 46.7% to Rs 13,930 crore. Most frauds occurred in digital payments, but the highest value frauds were in loan portfolios, with public banks contributing the most by value.
- A new weapon against online payment frauds: Timely alerts on transactions via UPI, debit card, credit card, Net and mobile banking
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Govt shares data on online banking fraud and how many cases solved
The amount involved in online banking frauds declined.
The corrective steps taken by the Government to prevent fraud and cheating through online transactions
1) A comprehensive circular on Cyber Security Framework in Banks was issued by RBI on 2.6.2016, wherein banks were advised to put in place a board-approved cyber-security policy elucidating the strategy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk.
2) Guidelines on Cyber Security Controls for third party ATM Switch Application Service Providers (ASPs) have been issued by RBI on 31.12.2019.
3) Master Directions on Digital Payment Security Controls have been issued by RBI on 18.2.2021, wherein banks have been advised to put in place necessary controls to protect the confidentiality and integrity of customer data, and processes associated with the digital product/services offered.
4) A National Cyber Crime Reporting Portal has been launched by the Ministry of Home Affairs to enable public to report incidents pertaining to all types of cybercrimes, and a toll-free number has also been operationalised to get assistance in lodging online complaints.
5) For immediate reporting of financial frauds and to stop siphoning-off of funds by the fraudsters, Financial Cyber Fraud Reporting and Management System module has been made operational by the Indian Cyber Crime Coordination Centre (I4C), working under the Ministry of Home Affairs.
6) The Indian Computer Emergency Response Team (CERT-IN) under the Ministry of Electronics and Information Technology issues alerts and advisories regarding latest cyber threats and countermeasures on regular basis to ensure safe usage of digital technologies, and is working in coordination with service providers, regulators and LEAs to track and disable phishing websites and facilitate investigation of fraudulent activities.
A number of steps have been taken to enhance security of digital payment transactions
- conversion of magnetic strip card to EMV chip and PIN cards;
- mandating enablement of online alerts for all transactions;
- certification of merchant terminals;
- mandating PIN entry for all ATM transactions
- enabling all ATMs for processing EMV chip and PIN cards;
- restricting international usage by default and enablement of the same only after specific mandate from the customer;
- Capping the value/mode of transactions/beneficiaries;
- setting daily limits; and
- issuing alerts upon addition of beneficiaries.
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Digital financial frauds in India: a call for improved investigation strategies Premium
A recent report by the indian cybercrime coordination centre revealed that digital financial frauds accounted for a staggering ₹1.25 lakh crore over the last three years.
Published - March 25, 2024 10:30 am IST
For representational purposes. | Photo Credit: Getty Images
Cybercrime poses a burgeoning threat in India, impacting millions of individuals and organisations. According to the National Crime Records Bureau (NCRB), cybercrimes in India in 2023 resulted in a staggering loss of ₹66.66 crore, with 4,850 reported cases. A recent report by the Indian Cybercrime Coordination Centre (I4C) revealed that digital financial frauds accounted for a staggering ₹1.25 lakh crore over the last three years. According to the National Cybercrime Reporting Portal (NCRP), in 2023, at least ₹10,319 crore was reported to be lost by victims of digital financial fraud. The Parliamentary standing committee on Finance in its report on “cyber security and rising incidents of cyber/white collar crimes” mentioned that the domestic fraud as reported by the SE (Supervising Entities) in FY’23 was ₹2537.35 crore. According to the report, the number of complaints received in 2023 alone was 6.94 lakh.
Some of the problems faced during investigations are highlighted here with solutions for both prevention and detection of online financial frauds.
How digital frauds work
While various names have been given to diverse types of frauds, the general modus operandi of a fraudster is any one of the following: (a) convincing the victim to send money, either by impersonation (fake WhatsApp/FB/Insta, social media profiles) or by giving them a false promise of greater return (investment, crypto, held up custom package etc.)
(b) by taking credentials such as Unified Payments Interface ID (UPI), Personal Identification Number (PIN), One-Time Password (OTP) or Internet banking ID/password from the victim and then using the same on other apps/websites and transferring money without the knowledge of the victim. For this the customer will either be given a fake link which looks exactly like a UPI app screen/banking website or the victim will be conned into installing a screen sharing app. The scammers can also convince the victims over phone to give out those details. When these details are used on official banking apps this gives the fraudsters access to even the Fixed Deposits/Recurring Deposits which are also siphoned out in most cases.
(c) by taking card details and convincing the victim to share OTP.
After the scam
After a fraudster empties a victim’s bank account, the money undergoes a series of circulations in broadly three stages. The first stage is a temporary account into which the fraudsters transfer victims’ money. This account will be used to receive money from various other victims as well. From here, the money is then transferred into a second stage account. The second category of accounts are a group of accounts among which money is circulated. There are a lot of middlemen who are money circulators. Their task is only to receive money from first level bank accounts for a nominal cut. The victim’s money is then split into small parts and then circulated within these accounts, by a person who is sitting in a different corner of the country. After sufficient churning, the money is then transferred into a third stage account which is a sink account. This can be a bank account, an e-wallet etc. Here, the total defrauded amount from a group of victims is re-collected. The money is then withdrawn in a large chunk through conventional methods of either ATMs/cheques or e-wallet cash outlets such as an e-wallet payments bank.
How can frauds be prevented
Most frauds can be prevented with some basic technological interventions:
As a first, just as how Google accounts do not allow logging in from a new device unless permission is granted by the former, financial institutions must be mandated to replicate this feature in their apps. As soon as a UPI ID, password or OTP is entered in a different device, an alert must be generated in a previous device with no further action being allowed until it is approved by the person. Secondly, the screen share facility must be disabled. Banking and financial apps must disable screen-sharing to run on top of them. And finally, in the bank statement, all banks/NBFCs/SEs must be mandated to provide comprehensible data. Currently only partly printed numbers are shown which even knowledgable customers are unable to understand. The transaction description must contain the receiver’s account/mobile or any other identifying number irrespective of it being within the same bank or to an outside bank.
One of the biggest hindrances law enforcement agencies face is in following the money trail. The siphoned off money hops across bank accounts and wallets within minutes but supervised entities/banks/NBFCs/wallets are not able to give the required details to agencies with the same speed. Most of the crime is reported after 24 hours of the commission. Due to stress and trauma most victims end up deleting much of the evidence from their devices/phones. By the time a money trail is established the money is already withdrawn from the system and there is no way to either identify the person or recover the money.
Speeding up information access
Certain basic changes to the form of data provided to enforcement agencies can help in minimising delays:
(a) the banks/NBFCs/SEs must be mandated to provide data in a predetermined format with all the terms explained. The data must be given in a CSV or XLSX file. For example, the CDR (Call Data Record) shared to enforcement agencies has a fixed format and fixed file types, such as .CSV or .XLSX. Currently the banks give the statement either in a printed hardcopy or in PDF format. This causes huge inconveniences to the investigating officers. Most tech-savvy officers are often held back only because they do not get the data in a usable format. (b) The International Mobile Equipment Identity (IMEI) must be recorded. All banking and financial apps must be mandated to save IMEI details of the device being used. Fraudsters use fake mobile numbers and fake bank accounts which span across different States with the goal of adding layers to increase anonymity and preventing agencies from prosecuting them. Thus, the IMEI becomes crucial evidence in determining the device and its location. Recording IMEI will make for stronger evidence in establishing a device and its connection to fraudsters in a court of law.
The road ahead
The Bharatiya Nagarik Suraksha Sanhita 2023 which is set to replace the Indian Penal Code of 1861, recognises ‘organised crime’ as a “continuous unlawful activity”. Digital financial frauds are very much covered in this definition. Law enforcement agencies face a lot of difficulties in conducting interstate raids and arrests. It requires a large team and coordinated effort. Interstate digital financial fraud networks must be recognised as a serious crime and bail may be restricted by the Courts. Additionally, digital frauds create a considerable amount of black money when seen from a macro-economic perspective. In conclusion, cybercrime being a subset of crime in general can be dealt like conventional offences, albeit with a different set of tools. Instead of a specialised unit, if the fintech and telecom industries are mandated to take certain preventive steps in their technology and provide data in a manner which enables speedier investigation, the prevention, detection, recovery and conviction will be much more effective. Faster availability of data will make it easier to identify and convict pan-Indian gangs.
The author is an IPS officer, currently posted as Addl DCP, Delhi Police.
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Online financial frauds account for 77.41% of India’s total cybercrime ecosystem: FCRF report
Reserach conducted by dcrf found that among online financial frauds taking place in india, upi-related scams are most prevalent at 47.25 percent..
The FCRF paper titled ‘A Deep Dive into Cybercrime Trends Impacting India’ researched and analysed cybercrime data between January 2020 and June 2023
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Combating fraud in the era of digital payments
Introduction.
COVID-19 pandemic, there has been a major spike in the number of digital payments in India. Innovation in the payments landscape, regulatory support, the increase in smartphone penetration and cheaper mobile internet access have played a key role in the adoption of digital transactions and their rapid growth in India. Payment service providers, along with new players and additional investments, have been providing an enhanced seamless user experience at competitive prices, promoting wider adoption of digital payments.
Users have multiple options for digital payments such as cards, wallets, Unified Payments Interface (UPI), mobile banking, QR code and various other methods. UPI has contributed significantly to the growth of digital transactions in India. In 2021–22, UPI accounted for a record 46 billion transactions out of the total volume of 72 billion digital payment transactions. 1 This number was an increase of 109% over the previous year’s volume of 22 billion. Digital payments grew by 64% during the same period.
The increase in the adoption of these advanced payment options, however, has also generated unprecedented opportunities for fraudsters to perpetrate fraud by exploiting digital payment systems and human vulnerabilities.
As per the Reserve Bank of India’s (RBI) Annual Report 2021–22, the volume of frauds reported by financial institutions (FIs) using cards and internet banking was 34% higher at 3,596 in 2021–22 as against 2,677 frauds in 2019–20. The value of fraudulent transactions in 2021–22 was INR 1.55 billion – 20% more than that in 2019–20 (INR 1.29 billion). In terms of value, 01 these card- and internet-related frauds amounted to 0.2% of the total value of fraudulent transactions. Overall, the payment frauds as a percentage of total digital payments in India has increased from 0.008 bps in 2019–20 to 0.0089 bps in 2021–22.
Value of frauds vis-a-vis the digital payments transactions (cards and internet banking)
With the rise in technological advancements, incidents of fraud have also become more organised and sophisticated – for example, targeted hacking into networks and databases, phishing attacks, etc. This has become a major concern among consumers. Specifically, with significant data relating to cards being stored and transferred digitally, fraudsters can attempt to exploit vulnerabilities in the system and gain access to such information for wrongful use.
The changing nature of fraud and increase in fraudulent activities can be attributed to the following factors:
Diversified entry points
Businesses in India have been digitising across their value chains at breakneck speeds. This increases the scope of opportunities for fraudsters and offers them a wider attack surface for exploitation. The common entry points include social media, e-commerce, or services like retail transactions, rideshares and lodging.
Vulnerabilities in the new payment technologies
Due to the expanding digitisation of businesses amid growing competition, the payments industry has come up with multiple payment platform options for customers. However, platforms with weak server-side controls make the payments infrastructure vulnerable to attacks.
Further, the risk of cyberattacks has increased significantly due to more data records – personal and financial information – being stored digitally, and employees connecting remotely through unsecured networks. Customers are also increasingly falling prey to the ‘authorised’ push payment fraud in the new payment technologies.
Lax preparedness of new players
There are multiple new-age digital native start-ups entering the ecosystem, with a lot of customer data at their disposal. However, they lack the wherewithal to handle the muchneeded security aspect.
Lack of customer awareness
Despite increased efforts by payment service providers at customer education, customers often become victims of fraud very easily. This can be attributed to their lack of awareness of the new and advanced payment technologies and fraud tactics associated with them.
Unsecured remote access
With the advent of work from home in the pandemic era, organisations have become more susceptible to payment data leaks owing to remote access to their systems. Default credential setting and open remote access has now become easier outside the firewalled confines of an organisation, thereby helping fraudsters to take control of devices and engage in fraudulent activities.
The advanced techniques used by fraudsters impact customer trust in digital payment instruments. For FIs, fraud may lead to loss of reputation and huge liabilities. Therefore, it is of utmost importance to mitigate and prevent such incidents. Having risk mitigation measures in place can significantly reduce exorbitant operational costs. Such measures eliminate the need to spend time and resources on reviewing every transaction alert. Moreover, these measures safeguard a company’s reputation and, in turn, its customer base, helping it to avoid regulatory actions.
Fraud in digital payments
Frauds, in any country, are driven by multiple factors such as local payment behaviour, customer awareness, security of payment systems, the regulatory environment, maturity of the payments domain, technical advancements and economic development of the country.
The payments ecosystem comprises multiple stakeholders such as banks, networks, payment gateways, channels, sellers, merchants, customers and buyers, which interact with each other. These stakeholders may have risks associated with them.
For example, a single payment from a customer to a merchant involves multiple stakeholders in the payments process flow. When the customer pays the merchant, the relevant information is passed on from the merchant payment gateway and processor to the customer’s issuing bank, through the card association network. Once the customer’s issuing bank authorises the transaction and deems it valid, the payment processor completes the transaction.
During this process, frauds can be perpetrated at any stage. Some common techniques and tricks used by the fraudsters in perpetrating these frauds across the payments ecosystem have been detailed in the following section.
Payments processing cycle using a card
Common fraud typologies.
The RBI's Annual Report 2020—21 suggests a clear increase in the number and value of payment frauds in India. The frauds and mitigation measures for the same have been covered in a press release by the RBI. 2
In the following section, we take a closer look at the common fraud typologies in an Indian context, including common tactics used by fraudsters, along with the payment instruments or channels that are most vulnerable to these types of frauds.
Identity theft/impersonation
Fraudsters acquire users' personal information (e.g. PAN/Aadhaar details or social media credentials) or critical information about their bank accounts in order to gain access and initiate online payments or open a payment account to execute transactions. Personal data of customers is made available on the dark web, enabling fraudsters to carry out this type of fraud. There have been multiple incidents in India involving banks, payments banks and other FinTechs wherein the victims of identity theft have reported that their personal details were used by fraudsters to perform fraudulent transactions, including availing of credit card facility from banks. 3
Fraudsters may also impersonate an authorised official (bank employee, police, Government official, health official, etc.) or the user's trusted acquaintance, and manipulate the user into transferring money.
Phishing/vishing
In India, as the adoption of digital transactions has become more widespread, there has been an increase in the number of phishing and vishing frauds. Fraudsters execute vishing frauds by posing as customer service executives from banks and convincing the unsuspecting customers to complete or update their electronic Know-your-Customer (eKYC) online in order to keep the account active. When the customer performs the process online, the fraudsters obtain confidential information and manage to perform illegal transactions using the OTP shared. Also, the fraudsters do not let the customer hang up the phone lest he/she should come to know about the illegal transaction.
In phishing frauds, the fraudsters send emails or text messages that contain a malicious link which takes the customer to a web page that is deceptively similar in appearance to the actual website of the bank. The customers end up mistaking the fraudulent website for the actual one and enter confidential information, which is then used by the fraudsters to perform illegal transactions.
Web skimming
Web skimming is a hacking technique wherein the fraudsters install malicious software on the payment or checkout pages of an application and obtain confidential payment information. For instance, e-commerce websites employ use of third-party applications, paving the way for fraudsters to install their malicious code into the trusted third-party host site.
There have been multiple reported cases of web skimming in India where fraudsters obtain the card details — such as card number, CW and expiry date — of unsuspecting users through e-commerce websites. The e-commerce websites have been particularly targeted due to their popularity and widespread presence.
By using QR code
The number of Bharat quick response (BQR) codes deployed in India in 2020—21 (49.7 lakh) have increased by 39.3% from 2019—20. At the same time, fraudsters have exploited the use of QR codes for conducting fraudulent transactions.
In many cases, fraudsters send a fake QR code to the unsuspecting customer, scanning which will enable the customer to receive money in his/ her bank account. However, once the code is scanned, the money gets deducted from the customer's account instead. Also, in some cases, the fraudsters replace the physical QR code with their own QR code at shops/ merchant locations, thereby deceiving customers to make payments to the wrong account.
Social engineering
Social engineering attacks generally involve exploiting unsuspecting users by convincing them of a serious issue related to their bank accounts so that the users divulge confidential information. In most cases, the fraudster psychologically manipulates the unsuspecting user into divulging their banking details or convinces them to make payments. The perpetrator generally pretends to be from a trusted organisation or poses as a family member of the user or an employee of an FI.
Account takeover
This type of fraud involves fraudsters trying to take illegitimate control of the user's account by stealing their login credentials and making payments. In most cases, the fraudsters remain unnoticed as they change the details obtained at the first step, before performing payments.
Database breach
Fraudsters, or a group of organised criminals, gain access to the banking systems or payment service provider networks to initiate or alter transactions. The 2016 cyberattack 4 on the Bangladesh Bank, Central Bank of Bangladesh, is a classic example, where organised criminals got access to the bank's credentials and authorised payment transfers.
Remote access assistance
In this type of fraud, the fraudsters convince the user to provide remote access to their device for resolving some technical issues. They often do so by impersonating a member of a laptop servicer's technical support team, or a bank official helping to unblock the user's account or provide KYC support. After gaining remote access, the fraudsters gather all confidential information related to the user's payment accounts and misuse it to make payments.
Several cases have been reported where people receive an SMS asking for the KYC update of their bank account, along with a number to call for assistance. When people call for assistance, the fraudsters ask them to download a remote support application and share a code to receive confidential information and siphon off money from the bank account. 5
Botnet attack
Fraudsters inject malicious software (also known as bots) into a group of computers and link them together to launch coordinated botnet attacks. This allows fraudsters to gain access to the user's devices, and override their existing security methods to record the user's sensitive information. Later, this information is used to conduct fraudulent activities.
Several incidents have taken place where botmasters gained access to private shopping data across various brands and personal computers using bots. These bots are downloaded by an unsuspecting user via pirated software, advertising links, email attachments, etc.
These are some of the common and emerging fraud typologies and methods used by the fraudsters to target various digital payments channels used by Fls in India. Incidents of fraud in digital channels have been on the rise when compared with those in conventional channels. The risks of conventional channels are widely known, and people are aware of the methods to protect themselves against such frauds. However, they lack the experience and awareness when it comes to newer or digital channels.
Use of fraud typologies to perpetrate payments channels
As discussed in the previous section, fraudsters make use of various methods and techniques to carry out malicious activities using various payments channels in India. These activities are often aimed at attacking the payments infrastructure and result in financial losses. Some of the payments channels used by fraudsters are listed below:
UPI payments and wallets
UPI offers multiple payment flows such as QR code scanning, UPI ID- enabled payments or phone number-based payments. Fraudsters often employ various methods in order to trick unsuspecting users. A common method involves sending the user a malicious link guised as a collect request to pay for a product/service.
Many fraudsters create UPI handles with a valid-looking or genuine- appearing name, such as ‘BHEM’/’BHEEM’ or ‘NPIC’, in order to deceive the user, who believes these handles to be authentic and disclose their account details. Most UPI frauds are driven by users’ ignorance and lack of awareness of the platform.
Other common fraud methods used in UPI payments include fraud by using fake QR codes and remote access assistance.
ATMs /point-of-sale (PoS) machines
By using personal data obtained via remote access assistance or skimming devices installed at ATMs/POS machines, fraudsters execute transactions from the user's account. In addition, fraudsters may claim false chargebacks using cards. The common types of fraud perpetrated in ATMs/PoS machines include card skimming and unauthorised access.
Aadhaar-enabled payment system (AePS)
AePS is another mode of payment wherein customers use their Aadhaar for identification at a business correspondent (BC) equipped with a biometric POS in order to perform cash withdrawals. Corrupt BCs can withdraw more than the amount the customer has requested without providing a receipt, and siphon the excess amount. Fraudsters can also clone the fingerprints (biometrics) of customers and withdraw money from the AePS.
Several cases of fraud involving siphoning of Government welfare funds meant for underprivileged beneficiaries using AePS have surfaced in the recent past in the country. Most AePS-enabled frauds are perpetrated due to customers' lack of knowledge and awareness regarding the use of AePS. Fraudsters also hack the database and get unauthorised access to the customer information and perform fraudulent activities through AePS.
Internet banking
Using confidential data such as login credentials obtained through various fraud methods like phishing or remote access assistance, fraudsters execute illegitimate internet banking transactions.
Mobile banking
With an increase in the availability of smartphones and internet penetration, mobiles phones have become the most opted instrument to perform digital transactions. Users have the option of downloading the applications of banking service providers on their mobile device to perform such transactions easily. However, as such channels are vulnerable to fraud, the fraudsters can misuse the user's credentials or personal data to penetrate into the user's banking application.
Prepaid cards
Stolen prepaid card information can be easily used by the fraudsters to make transactions or buy a prepaid card with stolen payment credentials. Prepaid cards preloaded with money are often not linked to any account. Thus, they cannot be tied to any specific user, which makes them vulnerable to fraud.
Future fraud risks
The advancement of new-age technologies has taken the delivery of financial services and the customer experience to the next level. Fls are actively using artificial intelligence, machine learning, big data and natural language processing to redefine their products, service delivery models and the overall customer engagement. However, these emerging technologies are not immune to fraud risks. A few potential fraud risks associated with these technologies are detailed below:
Frauds related to near-field communication (NFC) technology
NFC-enabled cards for contactless payments are comparatively more secure as they employ radio frequency waves instead of internet connectivity. However, one major drawback associated with such cards is the lack of password protection. Fraudsters will exploit this technology as the payment acceptance limit on such transactions continues to increase.
Cryptocurrency frauds
With the increasing public interest around cryptocurrencies, it is only expected that this currency will also be susceptible to malicious attacks and be exploited by attackers and cybercriminals. According to a report released by the Federal Trade Commission (FTC) consumer sentineI, 6 scams in crypto are seeing an exponential rise in the United States, with losses of around USD 80 million from Oct 2020—Mar 2021, which is ten times that of the previous year. The most common and emerging cryptocurrency frauds can be classified as below:
a. Investment scams: With little knowledge of the digital currency market, users or investors are easily tricked into believing the authenticity of a cryptocurrency. New types of coins are introduced every day and released in the market as an initial coin offering (ICO). Fraudsters are creating fake websites that draw investors in these currencies with the promise of substantial returns. As more and more investments come in — inflating the value of the currency — the initial investors pull out their holdings in an act frequently termed as a ‘rug pull’. Once the scammer's money has been pulled out, the platform is taken down, leaving investors with no option to sell their assets.
b. Wallet scams: There are two types of wallets in the crypto world, commonly distinguished by the mode of storage of the currency — online or offline. These are known as hot and cold wallets respectively. Hot wallets are susceptible to potential phishing scams, whereas cold wallets are susceptible to loss of currency when the storage device is lost or the passkey to access it is forgotten.
Phishing scams related to crypto wallets are similar to those involving other types of wallets. In both cases, fraudsters try to retrieve personal information and authentication keys to gain access and steal money from the wallet.
With the increasing use of cryptocurrencies, such frauds are expected to grow in the coming years.
Frauds with the advent of 5G technology
In terms of future technologies, incorporating 5G technology into the payments ecosystem will lead to faster payments. However, it may also present a larger attack surface to fraudsters. The ability of Fls to scale up fraud prevention and detection also be tested. In June 2022, 7 the Indian Government Union Cabinet claimed that the 5G network will provide speed and capacity that would be 10 times higher than that of 4G. As a result, the traditional fraud-identification measures will not be sufficient to combat 5G-initiated frauds. The number of devices with a single credential, speed and low latency of 5G technology will require more advanced methods of fraud detection in order to mitigate and prevent attacks.
Fraud risk management
Fls have started taking a holistic approach towards fraud risk management by gradually shifting from static and standalone fraud detection and monitoring systems to a dynamic enterprise-wide fraud risk management approach that supports them throughout the life cycle of customer transactions. The pandemic increased the volume of digital payments. As a result, the evolving multiple channels of customer engagement and accelerated adoption of new technologies in payments have had a profound impact on how an FI manages its fraud risk.
Fls are increasingly adopting a framework that integrates the people, policy and process, and technology aspects together for a more effective, agile and dynamic anti-fraud response.
The people aspect emphasises the importance of the human aspect in the operationalisation and implementation of a robust fraud risk management framework. The process aspect emphasises the tone at the top — which refers to the commitment of the top management towards robust fraud risk management policy —and enables a strong, anti-fraud response by setting up strategies, policies and procedures. The technology aspect plays a key role in the implementation of a strong fraud risk management framework by using the right technology and tools for fraud prevention and detection.
The end-to-end fraud risk management response of an FI must balance customer experience with fraud control priorities. However, managing fraud risk while improving the customer experience is a major challenge faced by Fls amid the evolving payments landscape. The key aspects of fraud risk management are explained in detail below:
Dedicated fraud control unit (FCU)
Fls should have a dedicated and independent fraud control unit staffed with resources having skills and experience in fraud risk management. Knowledge of all business units, products and services, technologies involved, and complexities of business is equally important for the FCU staff. Specifically, the FCU staff should be familiar with technology, fraud risk and security.
Regular training and awareness
The FCU staff need to get regular training and attend awareness sessions on fraud risk management. This training should cover the following areas:
- governance framework, policies and procedures to prevent and detect fraud risks
- updates on new payments channels and the specific risks associated with them • traditional and emerging fraud risks
- technologies used by Fls for fraud prevention and detection
- fraud detection methods and techniques
- fraud reporting for internal and regulatory compliance perspective.
In addition, an FI should look at the following aspects:
- The audit committee and board of directors should have sufficient oversight of the management's anti-fraud programmes and controls.
- The personnel in the Fls should respond in a timely and appropriate manner to significant control deficiencies, allegations or concerns of fraud, and violations of the code of ethics/conduct.
- The organisation must have an accountability and authority matrix (RACI matrix), and people should be assigned responsibilities to mitigate fraud risks.
Customer awareness
Fls must adopt nuanced measures to enlighten their customers and make them aware of new digital payments channels, products, fraud risks and how to safeguard their payments. As per regulatory directives, Fls should create relevant usage guidelines and training materials for customers to help them use their products. They should also provide all details regarding the process to complain about a digital product or to report any fraudulent or suspicious activity in the account immediately. Moreover, Fls must ensure that their customers are aware of the types of threats that could occur while using digital products and know how to take necessary precautionary measures. Information about the common fraud techniques — such as phishing, vishing, remote access and account takeover — used by criminals to gain fraudulent access to payment and sensitive information about customers must also be provided. Such training and customer awareness programmes will help people to understand the ongoing security concerns in the payments ecosystem and how to minimise fraud risks by staying alert.
It is also important that the customers read the mandated agreements and agree to the terms and conditions before using any payment product and remain vigilant.
Fraud risk governance framework
Setting up a fraud risk governance framework entailing the tone at the top, strategy, risk appetite, roles and responsibilities, accountability fraud mitigation, and fraud reporting is crucial for any FI. The fraud risk management policies and procedures should comprehensively:
- define the fraud risk drivers for Fls (product and services risks, channels, etc.)
- set risk mitigation controls (preventive and detective) in transaction monitoring, risk assessment and testing
- facilitate reporting and customer management.
Risk assessment
It is important for an FI to assess the likelihood and impact and mitigate the fraud risks associated with its business, products and services, and channels. Different areas of business are susceptible to different levels and types of frauds. A typical fraud risk assessment exercise of an FI would involve conducting a detailed assessment of its:
- business risks
- customer risks
- product and services risks
- technology risks
- channel risks
- employee-related risks.
Every new product should undergo a fraud risk vulnerability assessment. For example, fraud risks associated with a new digital account-opening service should be assessed in detail before its given a go-ahead.
Regular fraud risk assessments will provide Fls with the understanding to tailor their anti-fraud programmes in order to mitigate emerging threats, improve customer experience and complement and support business growth.
Overall, the fraud mitigation framework should help an FI identify, prevent, detect and respond to fraud risks. This will also help the organisation to reduce the overall cost of managing fraud risks.
To summarise, Fls need to check that they:
- have a formal and regularly scheduled procedure to perform fraud risk assessments
- assess the design and operating effectiveness of anti-fraud control activities.
Fraud simulation testing
Fraud simulation testing is another proactive measure to assess the process and system's vulnerability to fraud risk. Pseudo fraud scenarios are developed based on the emerging fraud risks and simulated on actual, select transactions to assess if the monitoring controls can detect them.
Investigation and reporting
An independent incident response or investigation team as part of the FCU with investigation skills and experience is key for investigation, identification of control breaches and liaison with regulatory and law enforcement agencies. The team should have knowledge of the current and emerging channels and products. Also, the team should be proactive, and report new risks and frauds identified to senior management on a timely basis. This can be done by leveraging the data obtained from the risk assessments conducted.
Having a technology-enabled risk management system ensures easy identification, management and further mitigation of frauds. Below are some of the technology-enabled measures that Fls can adopt for better fraud risk management.
Advanced analytics
With the help of behavioural analytics, data of the known frauds, customer behaviour, risk and transaction profile can be translated into scenarios to monitor the risks effectively by reducing the response time.
Real-time monitoring
Traditionally, rule-based systems were used to detect fraudulent transactions. However, this methodology yields a high number of false positives, which impacts customer experience due to the long lead times required to prove the authenticity of transactions. In this era where transactions happen in milliseconds, having a real-time fraud detection system becomes a necessity for firms operating in the financial sector. Such a system would help in proactively identifying potential security lapses caused by hackers and fraudsters, and block such transactions to ensure the safety of customers.
Technology plays a pivotal role in real-time monitoring of transactions and subsequent detection of fraudulent activities. AI-/ML-enabled technology systems, along with the rules and scenarios driven by analytics, play a crucial role in proactive risk identification and mitigation in real time while balancing the superior customer experience of a seamless transaction.
Dynamic customer data monitoring
Fls can leverage AI, ML data-driven techniques and high-performing analytical models that work on in-memory computing and use dynamic customer data — such as customer behaviour, profile updates transaction pattern and services availed — to visualise the hidden data patterns and create a risk management tool to highlight the anomalies in the payments.
Data used to build the models is not limited to the transaction data available with Fls. Fls also leverage third-party services to get customers' non- transactional data such as utility payments, salary statements and credit scores to build a 360-degree view of the customer. Hence, this approach will have higher accuracy in flagging any abnormal activity when compared to a traditional rule-based system.
Multi-factor authentication and biometrics
Embedding additional security features such as multi-factor authentication and biometrics during the product design and development stage is effective in ensuring the security of payment systems.
Device monitoring:
Fls can conduct transaction monitoring using device legitimacy monitoring which involves keeping track of the device IP, device geolocation, etc. Such identification techniques add a layer of security to real-time fraud scoring of a transaction. Such methods analyse information related to the device the transaction is requested from and flag any abnormal activity such as a new device login, login from an unusual location, configuration of the device, and IP address changes. This monitoring helps in proactively reaching out to customers to verify transaction authenticity, thereby reducing the associated payment risks. Before setting up a fraud monitoring tool, it is important for an FI to consider the following: • whether the fraud monitoring tool is integrated with all data sources
- whether the fraud monitoring tool implemented is used to detect financial stress/potential fraud across all channels and services
- whether the fraud monitoring tool is configurable — based on financial and non-financial parameters
- whether the fraud monitoring tool has data transformation capabilities (has functionalities around how data from various sources should be transformed/enriched to run the analysis).
Regulatory initiatives for fraud prevention and detection
Regulators in India have also been engaged with Fls in understanding the data and challenges, and supporting a technology-driven framework for effective fraud risk management. There are guidelines for fraud prevention, detection and fraud reporting. The Central Bank regularly publishes guidance for the entities operating in the payments ecosystem to help curb frauds. The RBI master circular for fraud risk management in digital payments is one such recent regulatory guidance. It provides Fls with certain key factors and parameters that they need to consider as part of their fraud monitoring function. Reporting to the Central Payments Fraud Information Registry (CPFIR) is another measure by the RBI to gather insights and data from the industry on frauds, which enables better regulatory framework and decision making regarding fraud monitoring. Regulators also conduct regular workshops to raise fraud management awareness.
Likewise, a group of organisations or industry specialists define industry standards such as Payment Card Industry Data Security Standard (PCI-DSS), Payment Application Data Security Standard (PA-DSS), and ISO27000. Fls are expected to abide by these regulations, standards or policies, as well as have internal policies or frameworks in place to prevent, detect and combat frauds.
Based on the fraud trends over the past few years, Fls must adopt a dynamic fraud risk management framework that balances risk management and customer experience. Further, as Fls adopt new channels for customer engagement, launch new products and services and make new alliances, the alignment of the fraud risk management process, data and systems and the integration of all of these elements will enhance the overall customer experience. Therefore, embedding the fraud management process into overall customer engagement and experience should be the first step forward.
The rapid adoption of new-age payment instruments continues to pose security challenges to Fls. To protect themselves and their customers, Fls must have an agile fraud risk management framework and invest in newer and safer tools and technologies.
Safety of digital payments, assessment of anti-fraud controls, and collection of fraud data to analyse patterns and red flags have been emphasised by the regulators and law enforcement agencies along with the use of new technologies to mitigate fraud risk. The pandemic and increased penetration of internet and mobile phones have only accelerated the use of digital payments, and the dependency on them will continue to increase in future. Thus, spreading knowledge and awareness of new payment technologies, channels and products, and the risks involved — to both customers and employees — is a crucial part of a fraud prevention strategy.
Effective fraud management requires a combination of different measures along the payment value chain. Fls are using fraud orchestration techniques in parallel with their prevention, detection and response measures. Fraud orchestration helps Fls mitigate fraud holistically by providing a comprehensive view of the situation at hand. This is done by gathering information from all payment channels, creating a transparent interface, analysing the payments information using the latest technology, and helping to manage fraud by letting the investigation team take appropriate decisions. This process helps define automated strategies for a better fraud risk management framework.
It is important for Fls to understand the basic building blocks of any payments ecosystem in order to be able to ask the right questions for mitigating fraud and work on the three key elements — people, policy and process, and technology. Also, it is important to continuously review the framework and perform risk assessments to update risk profiles and controls for fraud mitigation.
Payment fraud threats have provided a useful opportunity to Fls to strategically collaborate with technology firms offering new-age solutions in areas related to security, data privacy and fraud risk management. These firms leverage the power of big data, AI and advanced predictive modelling to detect security risks and frauds at various touchpoints in the payments life cycle and help to mitigate them.
As a popular saying goes, ‘risk cannot be eliminated, it can only be mitigated’. Therefore, it is necessary for Fls to continuously assess risks and provide a secure and future-ready transaction environment to customers.
Download Combating fraud in the era of digital payments
With inputs from induvant tomar, neha dharurkar, mayank tiwari, rohit mishra, shashank gupta, nishi sureka and manvitha syamala..
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... Internet banking fraud , namely, siphoning off several lacs of rupees from the account of the Complainant, which, according to the complainant, tantamounted to unfair trade practice and deficiency in...complainant has instituted the Consumer Complaint thereby alleging unfair trade practice, fraud and deficiency in service at the instance of the Ops. According to the complainant, the complainant is entitled...Section 7-B of the Indian Telegraph Act. The Consumer Complaint is also not maintainable as the complainant has already initiated a criminal proceeding against the Ops and that question of fraud is not to...
.... *current status of the Investigation/proceedings of internet banking Fraud in my above mentioned savings bank account. Bank has taken immediate steps to inform and guide and assist the file the FIR...: 19-05-2011 Second Appeal received on : 29-06-2011 The appellant was the victim of a 17000 rupees loss in her account through an internet fraud . Sl. Information sought Reply of PIO 1...generating further public awareness amongst customer about such fraudulent activities. No such adv was published in local newspaper. Copies thereof. *after reporting of such internet banking frauds, any...
...unit had returned the case as corporate internet banking fraud cases. Moreover, this opposite party take care and caution with the help of complainant to recover the amounts from the above said...-08-2009 only they provide the internet banking facility. This opposite party created CORP ID and User ID were created. The complainant again made request with this opposite party on 12-10-2009 to..., Kavali. EXHIBITS MARKED FOR THE COMPLAINANT Ex.A1 - --- Copy of Internet Banking Online Request for Resetting Passwords showing user Id of complainant. Ex.A2 - 04-09-2009 Letter from complainant to the...
...the URL as https://www.mahaconnect.in c) In the Internet Banking website once the user logs in, there is a continuous message scrolling that indicates clearly that such fraudulent 11. * Details.../ proceedings of internet Banking fraud in my above. Mentioned current account. 34. In resect of point no 37 regarding the Log-in and time details of IP addresses and places from which...and current account with your bank/ branches. Procedure regarding linking of internet banking , phone banking , ATM and Credit card facilities to such accounts and documents obtained under KYC...
...incorrect nor there was allegation of any short payment of duty;(ii) that the transaction through internet banking have just began in India and the same involved internet code and password system...very normal in the industry due to unauthorized cracking of internet code and password;(iii) that non payment of cenvat duty through internet banking for reason of fear of likely fraud in..., he has not adduced any reasons. On the other hand, the appellant claims that since they were new to Internet banking , they did not honour duty electronically due to the fear of fraud involved in the...
Can't display summary as content is Scanned, Please open the judgment to see full content.
...admitted that the complainant use the Internet Banking Facility of opposite party in respect of his account as he is completely aware of the procedure and functioning of Internet Banking . Further opposite party hav... is added as payee for funds transfer from your internet banking account. Confirm with URN NO. XXXXX. If you did not add payee, call now to report as fraud . If...information/confidentiality information while dealing in Internet Banking and have become the target of Phishing Mail Fraud inadvertently or otherwise. The parties are left to bear their own costs. Copy of...
...account with internet banking facility without request from the account holder and recorded as follows:—“From the contentions of both the parties, I observe that there is fault of the bank as they have linked the sch...complainant school had not applied to the Bank for providing internet banking facility for their accounts and therefore, it was a mistake on the part of the Bank to tag the school's account with the.... The complaint of the Principal of the DAV Public School alleged deficiency of service against the respondent Bank inasmuch as the School's bank accounts without net banking facility, was linked with...
... fraud or fraudulent action or any self implementation by the Complainant in Mobile Banking or Internet Banking etc. as alleged by the O.Ps or another allegation of no charge is being incurred by the.... Act, 2019 i.e service provider would not be applicable upon the Banking Authorities in the instant case. As O.Ps in respect of internet Banking /Mobile Banking etc. do not take any consideration or.... Through this petition We find, this O.P.- Banking Authority want to exempt themselves from being service provider of internet banking or mobile banking since it's registration...
...above, the above transactions took place before blocking of the Internet banking and the fraud had occurred through Internet banking . Though, his Account was closed with the appellants' bank, since the ...again. Subsequently, he was told by their executive that this transaction was made via internet banking . He informed them that the internet banking option was blocked by him therefore, the aforementioned...as to how a third person can withdraw the cash through ATM when the card is held in possession of the Complainant. No amount can also be withdrawn through internet banking unless the depositor shares...
...noted that the Bank was at fault in linking the School's account with internet banking facility without request from the account holder and recorded as follows:“From the contentions of both the parties, I ob...Commission and observed that it is not in dispute that the complainant School had not applied to the Bank for providing internet banking facility for their accounts and therefore, it was a mistake on the...School (“the School”) alleged deficiency of service against the respondent Bank inasmuch as the School's bank accounts without net banking facility, were linked with the personal Customer Information...
... internet banking credentials of Complainant No. 2 were compromised and OTPs were sent on each occasion when her internet banking was breached. However, the bank sidestepped the fact. The fraud ...'. From the above discussions, we seek to emphasize that it is the fault of the opposite party bank to have linked the complainants' account with internet banking facility without any request from them,...made through internet banking , although the account had "View Only" facility and did not have internet banking facility for transactions. He immediately brought this to the notice of the Branch...
...withdrawn. The main culprit is Swastik Telecom as fraud took place on the basis of the data in old mobile handset. The complainant has not changed his Internet Banking Login ID or his Password. The...by letter dated 11 January, 2013. The complainant responded anonymous mail for updating theth information about the internet banking . The complainant disclosed all the confidential customer...committed and the amount is transferred through internet banking in 12 different accounts of different banks. It is necessary to make enquiry with those banks and also account holders. Those are not the...
...Cyber Law and the provisions of IPC and CRPC as per the Law of the Land. It is submitted that the fraud has been committed by using login credentials of the internet Banking User and not through Bank...amount of Rs. 06,90,222/-. The complainant had also availing internet Banking Facility from the OP-1 for the past 2 years on his 2 savings account only. However, the complainant in the month of October...Branch. It is further submitted that the User ID and password is known only to the Customer and access to the internet Banking Facility was allowed only after validation of the user ID and the...
...the instructions 7 8 given by him to block his debit card. Since the Complainant continued to use his internet banking even after the fraud took...Accounts with the Appellant Bank and also having the facilities of ATM Card and Internet Banking . He is a pensioner retired as a senior police officer as Additional Commissioner of Police. The relevant...card, credit card or internet banking , the Bankers cannot block such transactions lest even the Respondent/Complainant may have a grievance against the Bankers if the transactions are blocked in the...
...the customers internet banking account. Confirm with URN Number. If the customer did not add payee, he has call now to report as fraud . If the customer ignores the SMS message of the bank, it is....1,2 & 3 and he is having Savings Bank Account with the opposite party Nos.1,2 & 3 and also having internet banking facility through which the complainant use to operating the Savings Bank Account. It is also proved an amoun...Branches of the First opposite party i.e., ICICI Bank, Habsiguda Branch vide No.006901000347 and the same is having Internet Banking facility, through which the complainant use to operating the...
...Service Branch as freezing of the Account cannot be done over phone. It has been stated that the Password used by the Complainant for internet banking is in the knowledge of the Complainant only. The matter of ...03.12.2013 at about 8 p.m. while the Complainant was on road received one SMS confirming debit of Rs.98,000/- from his individual Account through internet banking operation. After arriving at home he locked...outside of his residence he received one SMS confirming debit of Rs.98,000/- from his individual Account through internet banking operation. On arrival at home immediately Complainant looked into the...
...regarding his ATM Card and internet banking and complainant disclosed the same to that person. It is clear that complainant himself is negligent and disclosed secret information regarding his ATM card and internet ...bank account bearing No.00000055072116923 with opposite party No.1 since long with internet banking facility. It has been pleaded that complainant is also having mobile alongwith sim card prepaid with....1 has contended that no transaction can be completed unless and until the password of internet banking is disclosed or shared with any other person. Complainant has been availing ATM facility through...
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| Title: | Impact of Banking Online Frauds on Customers Perception A Case Study of Ludhiana Region |
| Researcher: | Neha Dhawan |
| Guide(s): | |
| Keywords: | Business Finance Economics and Business Online Banking Frauds Social Sciences |
| University: | I. K. Gujral Punjab Technical University |
| Completed Date: | 2023 |
| Pagination: | All pages |
| URI: | |
| Appears in Departments: | |
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E-banking frauds and Indian legal prospective
Statement of problem, aims and objectives:.
- To understand the development of e-banking in India.
- To understand the types of banking frauds and the areas in which frauds are committed in banks.
- To analyse the legislative framework that prevents banking frauds in India.
- To know the role played by the Reserve Bank of India in e-banking.
- To highlight the various security issues relating to the e-banking in India.
Scope And Limitation:
E-banking and it's payment system methods, meaning of e-banking, history of e-banking:, forms of e-banking:.
- Automated Teller Machine (ATM)
- Tele Banking
- Other Forms of E-Banking
- Debit Card: Debit Card are looks similar to the credit card or ATM card but can operate as cash or a personal check. Trough credit card and debit card look alike but there are certain differences between them. In credit card there is a way to pay later but in debit card there is a concept of pay now [13].
- E-cheque: it is a electronic version of paper cheque and a representation of traditional cheque making system.
- Other forms of e-banking: there are also other forms of electronic banking they are direct deposit, electronic bill payment ,electronic check conversion, cash value stored etc.
Advantages And Disadvantages Of E-Banking:
- Electronic banking is easy to open and operate by general people.
- One can easily pay their bills and transfer their money without any problem. Because of this people don't have to stand in long queue and keep their receipt safely as transactions are viewed by the person at anytime.
- The electronic banking is available at anytime because it is open 24 hours. People can access their account from anywhere at the night time and holidays also.
- The E-banking is fast and efficient and people don't have to waste time and can handle several accounts through internet banking.
- In electronic banking the person can keep eye on his transaction and account balance. Through this one can secure their accounts.
- Through E-banking bank can endorse their schemes and services to the people and people can aware of the new services.
- Through the e-banking is easy to handle by general people but the people who don't know the how to use the internet, it can be difficult to run them. Some banks provide demo for the beginners but not the all the banks.
- For online-banking people must have an internet connection for access the account without internet there is no e-banking facilities available.
- While transacting the money from one account to another account the security is the big issue, sometimes the information might get hacked by unauthorised people
- In E-banking password security must be there without it the account can be misused by the people.[14]
- When the server of the bank is down one can't access his account.
- Sometimes it is difficult to know if the transaction are done successfully or not due to the slow down of the net services. People have to remain in the state of doubt which is convenient and which is not convenient.
Frauds In The Indian Banking Sector
- Vijay Mallya Case
- Nirav Modi Case
Types Of Banking Frauds:
Embezzlement:, frauds relating to deposit accounts:, frauds in bills purchased and discounted:, frauds related to loan:, frauds by way of forgery:, perpetrators of banking frauds:, legislative framework, the indian penal code 1860:, the indian contract act 1872:, banking regulation act, 1949, the information technology act, 2000, role of reserve bank of india in e-banking:.
- Dictionary of Banking by F.E. Perry.
- Quoted in Law of Banking by Dr. S.R Myneni, First Ed,2006 p. 19 [Asia Law House, Hyderabad].
- Dictionary of Law by L.B.Curzon , 4th ed , 1993
- Section 5(b) of the Banking Regulation Act,1949 states banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise
- Section 5(c) of the Banking Regulation Act,1949 states banking company means any company which transacts the business of banking in India;
- https://en.wikipedia.org/wiki/Online_banking accessed on 11/12/2019 at 10 AM
- https://en.wikipedia.org/wiki/Cheque accessed on 11/12/2019 at 10:16 AM
- (1889) 14 AC 337.
- AIR 1976 SC 376.
- Section 463 of the IPC states: whoever makes any false document or false electronic record or part of a document or electronic record, with intend to cause damage or injury, to the public or to any person or to support any claim or tittle or to cause any person to part with property, or to enter into any express or implied contract, or with intend to commit fraud or that or that fraud may be committed, commits forgery.
- 2014 SCC SC 745.
- ILR (2014) 2 Del 1045.
- Section 378 of IPC,1860.
- Section 390 of IPC, 1860.
- THE OXFORD ENGLISH DICTIONARY 395 (15th ed. 1964).
- 1997 ISJ (Banking) 337 SC.
- Section 231 of the IPC deals with Counterfeiting coins.
- Section 489-A of the IPC deals with Counterfeiting coins of currency notes
- Section 378 of the IPC states that whoever intending to take dishonestly any movable property out of the possession of any person without consent, then the person is said to be commit theft.
- Section 379 of the IPC states that whoever commits theft shall be punished with imprisonment of either description for a term which may extend to 3 years or fine or both
- (1879) 3 Bom. 242,287.
- In this case it was observed that this clause is probably intended to meet all those cases which are called in the court of equity – cases of constructive fraud, in which there is no intension to deceive, but where the circumstances are such as to make the party who derives a benefit from the transaction equally answerable in effect as if he had been actuated by motives of fraud or deceit.
- Under the Reserve Bank Of India Act, 1934, 'Bank' means Reserve Bank of India constituted by this Act.
- https://en.wikipedia.org/wiki/Electronic_funds_transfer accessed on 20/12/2019 at 11P.M.
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₹ 1,438.45 cr bank loan fraud: ED attaches assets worth ₹ 43.52 cr linked to UIL
The ed has attached assets worth ₹43.52 crore linked to ushdev international in a ₹1,438.45 crore loan default case involving money laundering..
MUMBAI: The Mumbai zonal unit of the Enforcement Directorate (ED) has provisionally attached movable and immovable assets worth ₹ 43.52 crore as part of its money-laundering investigation related to a ₹ 1,438.45 crore bank loan default case involving metal trading company Ushdev International Limited (UIL) and others.
The investigation has revealed that funds granted as loans by a consortium of banks were allegedly diverted and then brought back to Indian firms, in which the overseas subsidiaries of the accused’s companies were majority shareholders.
The attached assets, suspected to be proceeds of crime in the case, are in the form of land plots, a building and funds lying in bank accounts in the form of fixed deposits, said an ED official, who requested anonymity as they aren’t authorised to speak to the media. The loan funds granted to Mumbai-headquartered UIL were allegedly diverted to different entities in the “guise of advances and unsecured loans” and subsequently brought back to India-based firms by routing them via multiple bank accounts, the official added. The subsidiaries were allegedly controlled by UIL’s directors and major shareholders.
UIL allegedly syphoned off most of the funds from credit facilities from multiple banks to several overseas firms incorporated by its directors, promoters or shareholders. During the investigation, India-based assets worth ₹ 43.52 crore belonging to UIL’s directors, shareholders and subsidiaries were identified and provisionally attached under the provisions of the Prevention of Money Laundering Act.
ED’s money-laundering investigation is based on a July 2022 First Information Report (FIR) registered by the Central Bureau of Investigation’s bank security and fraud cell against UIL, its two directors, and unknown public servants, among others. The case was registered based on a complaint lodged by the State Bank of India, alleging that the accused had conspired to cheat a consortium of banks it led that had sanctioned credit facilities to UIL from April 2013 to March 2018, and caused losses to them.
The loan accounts were later classified as non-performing assets on October 2, 2016. Later, the consortium got a forensic audit of the transactions done for the period between April 2013 and May 2018, which pointed to various alleged irregularities in the accounts, the ED official said.
- ₹ 1,438.45 cr bank loan fraud: ED attaches assets worth ₹ 43.52 cr linked to UIL','cta_text':'Enforcement Directorate','article_id':'101726169084989','article_category':'cities','publish-date':'Sep 13, 2024 08:14 AM IST','logged_in_status':(getCookie('ht_token') ? 'logged_in':'non_logged_in'),'user_ID':(getCookie('ht_token') ? getCookie('_ht_clientid'):'NA')});" > Enforcement Directorate
- ₹ 1,438.45 cr bank loan fraud: ED attaches assets worth ₹ 43.52 cr linked to UIL','cta_text':'Prevention Of Money Laundering Act','article_id':'101726169084989','article_category':'cities','publish-date':'Sep 13, 2024 08:14 AM IST','logged_in_status':(getCookie('ht_token') ? 'logged_in':'non_logged_in'),'user_ID':(getCookie('ht_token') ? getCookie('_ht_clientid'):'NA')});" > Prevention Of Money Laundering Act
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