internet banking frauds case study india

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Financial fraud top cyber crime in India; UPI, e-banking most targeted: Study

Financial frauds accounted for 75% of cyber crimes in india from jan 2020 to jun 2023, according to a study by an iit kanpur-incubated start-up..

Financial frauds accounted for over 75 per cent of cyber crimes in the country from January 2020 till June 2023, with nearly 50 per cent cases related to UPI and internet banking, according to a new study by an IIT Kanpur-incubated start-up.

Social media-related crimes such as cheating by impersonation, cyber-bullying, sexting and email phishing accounted for 12 per cent of the online offences during the period, the study showed.

The findings have been mentioned by the Future Crime Research Foundation (FCRF), a non-profit start-up incubated at the Indian Institute of Technology (IIT)-Kanpur, in its latest comprehensive whitepaper 'A Deep Dive into Cybercrime Trends Impacting India'.

For online financial frauds, which accounted for the maximum 77.41 per cent offences during the period, the FCRF noted that "this category is a dominant concern, covering fraudulent activities related to online financial transactions".

"Subcategories include debit/credit card fraud, business email compromise, internet banking-related fraud, and the alarmingly prevalent UPI (Unified Payments Interface) fraud (47.25 per cent)", it said.

These figures underscore the need for robust cyber security measures to safeguard financial transactions conducted online, the FCRF said.

Social media-related crimes accounted for 12.02 per cent online offences, according to the whitepaper.

"This category encompasses a wide range of crimes associated with online platforms and social media. Subcategories within this domain include cheating by impersonation, cyber-bullying, sexting, email phishing, and more. While cyber-bullying and impersonation accounted for significant percentages, email phishing and provocative speech for unlawful acts had a comparatively lower impact," it noted.

The FCRF stated that "other notable categories" contributed to nine per cent of the online crimes which delve into several other cybercrime categories with smaller but notable percentages, including online cyber-trafficking, online gambling, ransomware, cryptocurrency crime, and cyber terrorism.

Highlighting the diverse methods cybercriminals use to target digital infrastructure, the whitepaper also flagged that 1.57 per cent online crimes pertained to hacking or damage to computer systems such as unauthorised access, data breach, email hacking and website defacement or hacking.

"It is crucial for law enforcement agencies, individuals, businesses, and policymakers to understand the changing landscape of cybercrimes in India. This report not only highlights the distribution of cybercrimes but also underscores the need for collaborative efforts to combat these threats," FCRF co-founder Harshvardhan Singh said.

Singh added that "as technology continues to advance, so do the tactics of cybercriminals, making it essential for all stakeholders to stay informed and vigilant".

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A crisis that changed the banking scenario in India: exploring the role of ethics in business

• Published: 28 August 2022
• Volume 11 , pages 7–32, ( 2022 )

Cite this article

• Sushma Nayak   ORCID: orcid.org/0000-0001-9645-3095 1 &
• Jyoti Chandiramani   ORCID: orcid.org/0000-0002-6766-8975 1  

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Digital business has marked an era of transformation, but also an unprecedented growth of cyber threats. While digital explosion witnessed by the banking sector since the COVID-19 pandemic has been significant, the level and frequency of cybercrimes have gone up as well. Cybercrime officials attribute it to remote working—people using home computers or laptops with vulnerable online security than office systems; malicious actors relentlessly developing their tactics to find new ways to break into enterprise networks and grasping defence evasion; persons unemployed during the pandemic getting into hacking; cloud and data corruption; digital fatigue causing negligence; etc. This study adopts a case-based approach to explore the importance of business ethics, information sharing and transparency to build an information-driven society by scouting the case of Punjab and Maharashtra Co-operative (PMC) Bank, India. PMC defaulted on payments to its depositors and was placed under Reserve Bank of India’s directions due to financial irregularities and a massive fraud perpetrated by bank officials by orchestrating the bank’s IT systems. The crisis worsened when panic-stricken investors advanced their narrative through fake news peddled via social media channels, resulting in alarm that caused deaths of numerous depositors. It exposed several loopholes in information management in India’s deposit insurance system and steered the policy makers to restructure the same, thus driving the country consistent with its emerging market peers. The study further identifies best practices for aligning employees towards ethical behaviour in a virtual workplace and the pedagogical approaches for information management in the new normal.

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Introduction

The importance of information management in the banking sector has gained traction among researchers in recent times. Bank depositors place their savings with banks with an assurance to withdraw their funds on demand, based on the nature of contracts. Likewise, banks grant loans of diverse maturities to different borrowers out of the resources received as deposits (Diamond & Dybvig, 1983 ). In this formal arrangement, banks act as intermediaries vested with the responsibility of ensuring disclosure, operational transparency and ethical compliance as an essential practice of corporate governance. Information sharing is important because it propels ethical compliance and market discipline Footnote 1 among banks, and provides all the stakeholders with the information they need to determine if their interests are protected. Retail depositors lack sufficient information about the operational efficiency of their banks and are unable to communicate with fellow depositors, which may impede their ability to collectively guard themselves against potential bank failures.

Before opening an account, banks want possession of copies of various personal documents to know their clients well. However, the depositor never knows how the money mobilised by banks is spent. Bank assets are opaque, illiquid and short of transparency, because most bank loans are typically tailored and confidentially negotiated. Customers are constrained by the information shared by bank managers since financial products are intricate and risky (Tosun, 2020 ). Banks are, thus, at a risk of self-fulfilling panics Footnote 2 due to their illiquid assets (loans, which cannot be recovered from borrowers on demand) and liquid liabilities (deposits, which can be withdrawn by depositors on demand) (Bryant, 1980 ; Diamond & Dybvig, 1983 ; Liu, 2010 ). Lastly, it is assumed that the volatility of one bank might cause a contagion effect, distressing a group of banks or perhaps resulting in a systemic failure altogether.

While banks are inherently volatile due to the nature of the functions they perform (Kang, 2020 ; Santos & Nakane, 2021 ), only few have realised the importance of integrating ethics into their operations. In business, the perspective of ethical concerns has shifted dramatically in the past two decades. If a firm wants to be seen as a truthful affiliate and an esteemed member of the industry, it must exhibit a high degree of ethical compliance and upright conduct (Sroka & Szántó, 2018 ). Nevertheless, the situation gets worse when fraudsters abuse loopholes in banking systems to ride on the coat-tails of critical world events such as the COVID-19 pandemic, and its corresponding speedy digital acceleration driven by community guidelines such as “stay home,” “contactless digital payments” and so forth. Cyber-crime and online data breaches (Patil, 2021 ), unethical lending (Pandey et al., 2019 ), under-reporting non-performing assets Footnote 3 (Agarwala & Agarwala, 2019 ), frauds (Sharma & Sharma, 2018 ; Sood & Bhushan, 2020 ), poor information sharing (Jayadev & Padma, 2020 ) and floppy corporate governance (Agnihotri & Gupta, 2019 ) have been the factors responsible for most bank runs in Asia in general, and India in particular, in recent years. In 2020, when the Philippines was hit hardest by the virus, phishing was estimated to have surged by 302 percent (Mohan, 2022 ). The same year saw online fraud to be the second most common type of offence reported to police in Indonesia; likewise, investment scams had the greatest impact on victims in Singapore, with about USD 52 million defrauded in over 1100 cases (Bose, 2021 ).

During the period 2009–2021, 69,433 cases of bank fraud were reported in India; in the financial year 2021, the central bank of India confirmed that until mid-September, the value of bank frauds amounted to ₹1.38 trillion (Statista, 2021 ). According to the National Crime Record Bureau, the overall number of incidents of online fraud in India was 2093 in 2019, but it jumped to over 4000 in 2020 after the COVID-19 outbreak. It is interesting to note that five cities such as Ahmedabad, Delhi, Hyderabad, Mumbai and Pune, which had 221 incidences of online frauds in 2017, experienced a massive hike to 1746 cases in 2020 (Dey, 2021 ).

“Organized crime has been quick to respond, mounting large scale orchestrated campaigns to defraud banking customers, preying on fear and anxiety related to COVID-19” (KPMG, 2022 , p. 1). The COVID-19 pandemic has wreaked havoc on the banking industry, increasing fears of online frauds and spiralling bad loans—as consumer and business debt levels soar. In early 2022, while India was staring the Omicron-led third wave of COVID-19, the Central Bureau of Investigation registered four major cases of bank fraud involving Bank of India, Union Bank of India, Bank of Baroda and Punjab National Bank for siphoning of funds that resulted in losses worth ₹ 939 crore for the said banks (Financial Express, 2022 ).

A bank is expected to foster public confidence by providing demand-driven services while adhering to ethical practices such as transparency, honest and timely disclosures for customer retention, security and trust. This is likely to lessen the risk of bank runs, Footnote 4 which serves in upholding the security and stability of banks—necessary for consumer protection. Previous studies have rarely investigated how seamless information sharing with the public—by banks, government and regulatory bodies—may moderate the opacity of the bank’s financial performance and inhibit panic runs through informed decisions by the customers. This is particularly important in the current times of risk and uncertainty wherein ethical concerns are perturbing the stakeholders of most businesses, particularly banks.

The present study shall explore the importance of business ethics, information sharing and transparency to build an information-driven society by scouting the case of Punjab and Maharashtra Co-operative (PMC) Bank, India, which defaulted on payments to its depositors and was placed under Reserve Bank of India’s (RBI) Footnote 5 directions due to a massive fraud perpetrated by bank officials. The auditors, too, were deemed lacking in their duties because they failed to notice the bank’s serious infractions. Since the depositors were permitted to withdraw only ₹ 1000 from their accounts (suspension of convertibility) and banking operations were stalled until further directions, there was panic among investors. In fact, “PMC was also India’s first crisis related to a bank which played out on social media” (Kaul, 2020 , p. 256). The crisis worsened when uninformed and panic-stricken investors advanced their narrative through fake news peddled via social media channels, WhatsApp and Twitter, resulting in alarm that caused deaths of numerous depositors.

Based on the aforementioned discussion, the authors of this study shall explore answers to the following questions:

What are the gaps in risk-management systems in India’s banking sector, specifically in the slackly regulated cooperative banks?

What are the best techniques for aligning employees towards ethical behaviour in a virtual workplace, and how should they be assessed?

What are the pedagogical approaches for information management and ethics education in the new normal?

The rest of the paper is as follows. The next segment explores theoretical background, followed by methodology, case study, discussion, directions for future research and conclusion.

Theoretical background

Evolving paradigm of business ethics.

The impact of the COVID-19 pandemic on global health, organisations, economy and society is intensifying relentlessly (Mahmud et al., 2021 ). The current pandemic has compelled businesses to embrace virtual space to a greater extent than earlier. This needs a comprehensive review of business ethics, among other things. An ethical decision is one that is accepted by a larger community because it adheres to moral guidelines (Reynolds, 2006 ). With the bulk of the personnel working online and maybe indefinitely in the future, a paradigm shift in business ethics, values and social responsibilities seems imminent and looming round the corner. Remote employees are expected to be disciplined with the ability to fulfil their duties with minimal supervision. Remote workers must also comprehend the nature of the task they would be undertaking and what it requires for a business to flourish. Finding solutions to reconcile the demands of work and personal life is the main problem of the new work-life model (Aczel et al., 2021 ).

The idea of an organisation’s social responsibility swings between two extremes: one that limits the organisation’s obligation to maximising profit for its shareholders, and another that broadens the organisation’s responsibility to encompass a wide variety of actors with a “stake” in the business (Argandoña, 1998 ). From an ethical standpoint, the stakeholder notion of social responsibility is more engaging for the common good (Argandoña, 1998 ; Di Carlo, 2019 ). “An individual or group is said to have a stake in a corporation if it possesses an interest in the outcome of that corporation” (Weiss, 2021 , p. 153). Stakeholders are persons or groups with whom the organisation intermingles or works together—any entity capable of influencing or being influenced by the organisation’s activities, preferences, strategies, objectives or practices (Gibson, 2000 ). Therefore, a firm is responsible for value creation for all its stakeholders, not just shareholders (Freeman et al., 2018 ). The importance of stakeholder interactions on corporate performance is particularly highlighted by instrumental stakeholder theory (IST), which calls attention to the effects of high-trust, high-cooperation, and high-information-sharing (Jones et al., 2018 ). Although IST is contested by Weitzner and Deutsch ( 2019 ), Harrison et al. ( 2019 ) claim that few firms have the ability to maintain strong economic performance while also treating their stakeholders ethically at all times. Through communal sharing ties, societal welfare can be improved in a Pareto-optimised manner, meaning that shareholders and some stakeholders benefit without any other stakeholders getting worse. Building strong relationships with stakeholders becomes an appealing strategy even for managers who are fixated on bottom-line results.

The importance of business ethics and moral conduct among leaders is evident in light of the recent high-profile ethical scandals (e.g., Enron) and growing expectations for ethical standards in management. Having a strong self-concept as a leader fosters ethical leadership, which is helpful to organisations as it encourages employees to perform well—both in their roles and outside of them (Ahn et al., 2016 ). Ethical frameworks encourage managers to modify salaries to the “efficiency wage” point, which is the best compromise between the interests of shareholders and employees, and hence the best way to sustain stakeholder relationships (Zhong et al., 2015 ).

Business ethics in banks

Banks and financial institutions are transforming digitally at a rapid pace employing new technologies and developing digital business models that are eventually helping them to create and add more value to their organisations. Given the pace at which workforce skills are being enhanced in the digital reality, these institutions are advancing towards a significant dearth of ethical skills. “The ethical peril of unfair contract terms is evident from the abuse of banks’ dominant position relative to bank consumers in dictating contractual terms and conditions, and asymmetrical information that causes significant imbalance of rights and obligations of bank consumers as the weaker contracting parties, placing them at a detriment” (Bakar et al., 2019 , p. 11). The three pillars of ethics in banking are “integrity”, “responsibility” and “affinity”. Integrity is imperative because it helps build the trust that any banking system needs to thrive. Responsibility necessitates contemporary banks to consider the effects of their lending policies. Affinity refers to fresh approaches to bring depositors and borrowers closer than they are in traditional western banking (Cowton, 2002 ). Herzog ( 2017 ) presents a duty-based explanation of professional ethics in banking. According to this viewpoint, bankers have obligations not just to their clients, who traditionally represent the core of their ethical obligations, but also to prevent systemic harm to entire societies. In order to best address these issues, regulation and ethics must be used in conjunction to align roles, rewards and incentives and produce what Parsons refers to as “integrated situations”.

Collins and Kanashiro ( 2021 ) emphasise the importance of ethics in banks by explaining how they follow a practice of secrecy in maintaining cash vaults by informing the branch manager of the first three digits while the assistant manager informed of the remaining three digits. If the managers violate the policy and collude to know all the six digits, they would be fired. Likewise, studies also suggest that employees are less likely to quit their jobs when they believe their organisation is empathetic and accommodating and provides an ethically supportive setting (Jeon & Kwon, 2020 ). A sustainable job performance can be reached by workers only through strong work ethics (Qayyum et al., 2019 ). It is necessary for employees to encourage ethical practice and prevent unethical deeds that can harm the company’s image and performance, particularly with respect to small organisations (Valentine et al., 2018 ). Work ethics contribute to employees’ job performance depending on how much an individual fosters honesty, prudence, quality, self-control and cooperation while discharging their duties (Osibanjo et al., 2018 ). Even so, the banking business is plagued by a variety of ethical problems, including a lack of adequate ethics training, problems with trust and transparency, increased pressure of competition, the complexity of financial operations and the problem of money laundering, among others (Kour, 2020 ).

Ethically responsive education: challenges and way ahead

Business schools have traditionally assumed that executive education is either delivered online or in-person and that online executive education programmes are substandard than in-person programmes (González-Ramírez et al., 2015 ). This is no longer true. Drawing from their experiences during the pandemic, educators and their institutions are shifting to “omnichannel” programme models, where executive learners have a seamless and engaging learning experience across all channels and platforms through which they participate. While ethical practices are important for an enterprise, business schools face numerous hindrances in their efforts to promote ethical standards in their students (Sholihin et al., 2020 ). Virtual technology allows students to learn practical skills without leaving the classroom. Furthermore, moving from a physical class to a virtual setting can give real-time imagery and interface in a simulated world that is extremely close to the real world, allowing students to gain practical insights without having to leave their homes. Simulations give students room to test out their course knowledge and make leadership decisions through the lens of real-life situations—all in the safety of a virtual class. As a result, virtual technology might be one of the learning media to motivate students studying at home during a pandemic (Chuah et al., 2010 ). However, as pointed out by Bhattacharya et al. ( 2022 ), the support that the institution offers during the transition to online learning, faculty acceptance and adoption of the new technology, and adaptation of the teaching and learning pedagogy to the new medium, are factors that determine whether the abrupt shift to online learning is successful in meeting the needs of students with various learning preferences and abilities. The effectiveness of online learning depends largely on how interesting and dynamic the class sessions are designed by getting students to participate in discussions, role plays, browsing online links, engaging in polls, taking quick quizzes, etc.

Methodology

This study draws upon secondary sources and adopts a case-based approach to explore the role of ethics in business in a dynamic world that is gradually shifting towards virtual technology in the milieu of the global pandemic. The advantage of a case study is that it aims to investigate a current occurrence in its natural setting (Yin, 2017 ). In this study, papers dealing with a wide range of diverse themes relating to business ethics were reviewed. Also, relevant press releases by RBI and Deposit Insurance and Credit Guarantee Corporation (DICGC), newspaper accounts, videos, media narratives, annual reports and recast balance sheet of the PMC Bank were examined. Every fact was cross-checked from two different sources in order to establish the accuracy of the case information. Anything that did not meet this criterion was left out of the analysis. The data was gathered over a period of 2 years to track the changes in the work environment—before and during the pandemic—and to closely examine the multifarious developments that occurred ever since the crisis at PMC Bank came to light. Despite the authors’ attempts to speak with the irate PMC Bank customers to solicit their responses and reactions, the latter declined to do so due to the emotional trauma they had already experienced, and the sense of utter helplessness they felt following numerous unsuccessful attempts to knock at the doors of the relevant authorities. As a result, they denied to participate in the survey, a major limitation of this study.

The authors selected the case of PMC Bank as it featured among the top bank frauds in India towards the close of the previous decade (Sengupta, 2022 ). The PMC bank failure exposed several loopholes in information management in India’s deposit insurance system (DIS) Footnote 6 and steered the policy makers to restructuring the same, thus driving the country consistent with its emerging market peers. In March 2020, the Banking Regulation (Amendment) Bill was introduced in the lower house of the Indian Parliament to avoid a PMC Bank–like crisis in the future. While administrative matters would continue to be governed by the Registrar of Cooperatives, the bill aimed to apply banking regulation principles of the RBI to cooperative banks. Additionally, it suggested that cooperative banks be strengthened by raising professionalism, facilitating capital access, enhancing governance and assuring sound banking through the RBI. Following the failure of PMC Bank, the Union Cabinet amended the DIS in India and addressed an enduring concern of the depositors of troubled banks. In 2020, the deposit insurance (DI) cover was raised from ₹ 1 lakh to ₹ 5 lakhs with the approval of Government of India (RBI, 2020 ), and banks were mandated to disclose this information on their respective websites. Since July 2021, the depositors of distressed banks were permitted to withdraw their holdings from the accounts—up to the highest insured amount—within 3 months since a bank was placed under moratorium by the RBI (Kumar, 2021 ). The RBI also got the ball rolling to prevent scams such as the one perpetrated by PMC by enforcing a set of criteria for the hiring of managing directors and chief risk officers in banks; levying fines (for regulatory lapses); calling for higher reporting standards; developing a big data centre that could access data from banks’ systems; and proposing differential deposit insurance premium for banks, contingent on their risk profile. Likewise, the RBI issued new provisioning norms for primary cooperative banks’ inter-bank exposure as well as valuation of their perpetual non-cumulative preference shares and equity warrants, directing them to continue making provisions of 20% for such exposures, in the aftermath of the PMC Bank’s bankruptcy.

The case of Punjab and Maharashtra Co-operative Bank, India

About pmc bank.

The PMC Bank was functioning as a multi-State scheduled primary co-operative bank in India, with its area of operation extending over seven states viz., Andhra Pradesh, Delhi, Goa, Gujarat, Karnataka, Madhya Pradesh and Maharashtra. With a modest beginning in 1984 as a unit bank, the business later expanded over a vast network of 137 branches in less than four decades. Empowered by a mission “to emerge as a strong, vibrant, most preferred premier co-operative bank, committed to excellence in serving the customers, and augmenting the stakeholders’ value through concern, care and competence”, the bank gradually gained the trust of its customers by reaching numerous milestones such as earning the “Scheduled” Footnote 7 status by the RBI and consent to venture into the forex business (PMC Bank, 2021 ). The following years brought laurels to the bank in the form of recognition for “lowest dispute ratio” as well as “work ethics oriented to depositors’ service” by the All-India Bank Depositors’ Association; “Best Bank Award” by diverse State Co-operative Banking Associations; and so forth.

In the early weeks of September 2019, the RBI received information from a whistleblower that the PMC Bank was undertaking fraudulent activities which involved the bank’s board of management (Hafeez, 2019 ). The complaints pointed out that certain loans of PMC should have been classified as non-performing assets (NPAs) but were concealed in the bank’s loan account system. In response to these complaints, the RBI started investigations. On September 23, 2019, RBI placed restrictions on the PMC Bank citing “major financial irregularities, failure of internal control and systems of the bank, and wrong/under-reporting of its exposures under various Off-site Surveillance reports to RBI” (RBI, 2019 ). The RBI acted in quick time and took control of the bank’s operations to assuage any risk of a bank run. To protect the interests of depositors, RBI placed PMC Bank under “Directions” vide Sect. 35-A read with Sect. 56 of the Banking Regulation Act, 1949 (RBI, 2019 ). Subsequently, PMC was refrained from fresh lending, accepting deposits and making investments for six months Footnote 8 (Singh, 2021 ). According to a report by BloombergQuint ( 2019a ), at the heart of the PMC Bank crisis stood the fact that several bank officials manipulated their books and their IT system to conceal the loans given to the real estate developer Housing Development and Infrastructure Limited (HDIL). A primary cooperative bank Footnote 9 could lend up to 15% of its total capital to a single company—a norm violated by PMC (Kaul, 2020 ). The bank’s then Managing Director, in his confession letter to the RBI, claimed that PMC Bank’s exposure to the large corporate group—HDIL—was just about ₹ 2500 crores (Gadgil, 2019 ). However, PMC’s actual exposure to the HDIL group stood at ₹ 6500 crore, accounting for 73% of the aggregate loan book size of ₹ 8880 crore and nearly four times the regulatory cap as of September 19, 2019 (Rebello, 2020 ). The six board members of PMC had approved loans to HDIL, the largest borrower of the bank, by breaching the RBI’s exposure limit not just to HDIL, but also the Uttam Galva Group and Abchal Group (Rajput & Vyas, 2019 ). PMC had extended loans worth ₹565 crores Footnote 10 to Uttam Galva Group—an exposure in excess of the limits set by the RBI (BloombergQuint, 2019b ). There is limited public information on the Abchal Group or its promoters.

Things changed around in 2012–2013 when HDIL started defaulting on the dues owing to cancellation of a slum rehabilitation project near the Mumbai airport—a major setback to the real estate group. Even though the outstanding loans with the group swelled, the bank’s management did not classify them as NPAs, fearing a hit in the balance sheet. They were also apprehensive of reputational loss and facing regulatory action from the RBI. The Economic Offences Wing of Mumbai Police uncovered that the bank’s management had replaced 44 loan accounts of HDIL with over 21,000 fictitious loan accounts—all this in an effort to camouflage defaults by the HDIL group (Ozarkar, 2019 ). PMC bank incurred losses to the tune of ₹ 4355 crores (Seetharaman, 2019 ). Despite these losses, PMC continued to support HDIL owing to the relationship shared between the duo.

The relationship between the PMC Bank and the promoters of HDIL group dated back to the 1980s when the latter had first aided the bank by infusing capital of ₹13 lakh, and also placed a huge sum of deposits for the bank’s revival. Furthermore, when the bank was facing a run on its deposits in 2004, HDIL pumped in ₹ 100 crore to deal with the liquidity crunch that enabled the cash strapped PMC bridge over the crisis. As a result, more than 60% of the bank’s transactions were with the HDIL group. The PMC Bank would charge 18–24% interest from the group accounts and make good profits. Meanwhile, the HDIL group maintained that its banking relations with PMC were clean and the audits presented a true and fair picture (BloombergQuint, 2019b ).

Although HDIL had an impressive record of clearing dues despite certain delays, PMC Bank continued to report the loan accounts as standard assets—albeit they were gradually downgrading to substandard and doubtful categories. All this went unnoticed as statutory auditors were looking at only incremental advances and scrutinised accounts shown by the management (Dalal & Sapkale, 2019 ). Prior to 2015, RBI looked at only the top accounts of the bank. Since loans to HDIL were spread across multiple accounts, they never showed up in the RBI’s inspection. Post 2017, when RBI started looking into the “advances master”, PMC replaced the accounts belonging to the HDIL group with dummy accounts—of small amounts—to escape detection by the regulator (Ozarkar, 2019 ).

The modus operandi

According to a report by BloombergQuint ( 2019a ), experts claim that whenever an auditor or an RBI inspector looks at the books of a bank, they examine the top 50–100 accounts that the bank is exposed to. In the case of PMC Bank, these accounts were masked by holding too many accounts with little funds to avoid any suspicion, by manipulating the bank’s core banking system, officially known as the “core banking solution (CBS) Footnote 11 ”. All bank employees have access to the CBS—from a teller to the branch manager, to loan officers and risk managers—but their access and what they can do with the system is limited to their exact area of function. The CBS is essentially a back-end intelligence software. It provides the analytics for decision-making to the bank staff whenever bankers physically input data. So, the CBS has a “rule-engine” which is controlled by an access-control framework, letting only certain people alter the rules. Usually, every bank appoints an IT administrator for managing the CBS, who is the only person allowed to modify the software. According to forensic experts, whenever there is fraud at a bank, the “rule-engine” is compromised. Therefore, by giving limited access to the rule-engine, other employees—such as those in the credit department or risk management division—have little information of the changes made to the CBS. Thus, by creating 21,000 dummy accounts in bogus names to conceal from the auditors and RBI inspectors, other departments of PMC were perhaps in the dark the whole time the bank was exposed to the HDIL group.

The RBI in its investigation established that out of 1800 bank employees, only 25 employees had access to the loan accounts of the bankrupt real estate developer and its group entities (Hakim, 2019 ). These bank officials assigned specific codes to the accounts belonging to the HDIL group in order to disguise the money in the loan accounts. When the suppression of true accounts became too much for the employees, the management decided to come clean to the RBI. PMC was instructed to recast its balance sheet to present an accurate and honest portrayal of the bank’s assets (PMC Bank, 2019 ). Investigating agencies promptly arrested several bank executives including three top officials of the PMC bank, as well as two promoters of the HDIL group.

Depositors’ backlash

The cap on withdrawals came heavily on depositors, particularly those who held all their savings with the PMC Bank. The deposit withdrawal restrictions sparked off a massive public outcry as customers were unable to pay their bills. Ironically, the bank that clients had trusted to keep their money safe had now become the source of their woes. It was difficult to survive on minimal amounts. Businesspersons reported how their business operations had stalled, leaving them to survive on loans from relatives and friends. Several account holders could not access savings, much needed to meet their medical needs. Likewise, deaths due to cardiac ailments and suicide were reported. Footnote 12 Distressed depositors held protests outside the PMC Bank and the RBI quarters to permit withdrawals of their lifetime savings. During the same time, numerous WhatsApp videos started circulating among the aggrieved depositors and the news fired up on mainstream and social media (Kaul, 2020 ). Poor lending norms and questionable governance had afflicted the banking system, in part due to professional incompetence to assess project viability, and in part due to the political economy that permits, even nurtures, credit to privileged parties (partisanship). A fake news that went viral on online platforms was the speculation that the government was proposing to close nine public sector banks. This raised qualms about the systemic stability of banking in India, which compelled the RBI to issue a press release that no such plan was in the offing. “PMC Bank is too tiny to pose a systemic threat, but a small, dead canary in a coalmine is still a large warning sign” (Mukherjee, 2019 ).

In response to people’s anxiety and backlash, the RBI raised the withdrawal limits for PMC depositors from time to time, as illustrated in Table 1 . Deposit withdrawals were permitted to ₹ 1 lakh in exceptional situations such as wedding, education, livelihood, and other adversities. At the same time, in February 2020, the DICGC Footnote 13 was authorised to raise the deposit insurance coverage for a bank depositor, from ₹ 1 lakh to ₹ 5 lakh per depositor—an amendment brought into force after 27 years—since the previous one was initiated in 1993 (Nayak, 2020 ).

Simultaneously, depositors of insolvent or stressed banks that were placed under a central bank moratorium were entitled to recover their funds (up to ₹ 5 lakh) within 90 days of the commencement of the moratorium. The 90-day span would be split into two periods of 45 days. The RBI mandated: “The stressed bank on whom restriction is placed is expected to collate all information regarding the number of claimants and claim amount and inform DICGC about it within the first 45 days. Within the next 45 days, DICGC is mandated to process the claim and make payment to each eligible depositor” (Motiani, 2021 ). However, customers of PMC Bank were exempted from receiving ₹ 5 lakh in the first lot as the bank was under the resolution process.

Following the PMC debacle, the RBI strengthened its control by necessitating primary cooperative banks to submit quarterly reports of individual loan exposures above ₹ 5 crore to the Central Repository on Information on Large Credits (The Economic Times, 2020 ). The RBI established a big data centre to retrieve data from banks’ systems. The data centre would aid in the prevention of scams such as the one perpetrated by PMC Bank, in which data was camouflaged through the use of phoney accounts (ETBFSI, 2021 ).

The PMC bank takeover

In the second half of 2021, nearly 2 years after the PMC scam had come to light, Centrum Finance Services Footnote 14 was given “in-principle” approval by the RBI to establish a small finance bank that would take over the scam-plagued PMC Bank. Two distinct entities—the Centrum and BharatPe Footnote 15 syndicate (with 51:49 stake)—were collectively permitted to acquire the PMC Bank. Accordingly, Centrum and Resilient Innovation Private Limited (a BharatPe enterprise) were authorised to set up a small finance bank—which would hold the assets and liabilities of the PMC Bank (Panda & Lele, 2021 ). In October 2021, the Unity Small Finance Bank (USFB) got licence from the RBI and started its operations in record time with an equity capital of ₹ 1100 crore (Banerjea, 2022 ). The RBI came up with a draft plan for the merger of the beleaguered PMC Bank with the new entity, USFB. Depositors could claim up to ₹ 5 lakhs over a 3- to 10-year period, according to the proposal. They could receive up to ₹ 50,000 after 3 years, ₹ 1 lakh after 4 years, ₹ 3 lakh after 5 years, and ₹ 5.50 lakh after 10 years (The Economic Times, 2021 ). On January 25, 2022, the amalgamation of PMC Bank with USFB officially came into force. All the branches of PMC Bank would operate as branches of USFB, ensuring job security and stability to the employees of the merged entity, alongside consistent services to the clients. Since the draft amalgamation plan was opposed by an umbrella body of cooperative societies, the lead bank—USFB—came up with a press release: “96 percent of depositors, have deposits up to Rs 5 lakhs, will be paid upfront (subject to completion of the requirements as per DICGC rules). These depositors can choose to either withdraw or retain this amount with Unity Bank; or make additional deposits, and take advantage of the attractive interest rate up to 7%, being offered on savings accounts” (CNBC, 2022 ). Thus, the long-drawn-out scandal that stretched over 2 years ended up with the PMC takeover by USFB that was enforced in the larger interests of all the stakeholders.

The ethical stance

The PMC Bank failure is a classic case of ethical collapse, wherein the board of management and a few employees took a drastic step of compromising the interests of diverse stakeholders, with little thought to the ramifications it would have on those involved with the bank. This was earlier exemplified by Harris and Bromiley ( 2007 ), as well as Murthy and Gopalkrishnan ( 2022 ), while discussing the behavioural theory of the firm and the factors driving financial misrepresentation in the corporate world. The integrity and ethical commitment of senior management, the ethical policy of an organisation and the external pressure it is exposed to, have an impact on the ethical behaviour in the organisation, which further has an impact on the overall performance of small and mid-size enterprises (Abalala et al., 2021 ). Employees are not recruited on the basis of ethical considerations. Just as they acquire job skills through education, training and practice, they learn to be more or less ethical based on events and individual experiences over a period of time. Companies devote the most resources to environmental policies, but the fewest to actions that promote ethics and deter unethical behaviour (Abidin et al., 2020 ). From the standpoint of human resource development, several organisations consider ethics education as a one-time affair by developing an ethical code of conduct and stating it in their bye-laws. If they do address ethics later, it is mostly by instituting whistleblower laws (Schultz & Harutyunyan, 2015 )—similar to “being wise after the event” instead of “being safe than sorry”. Such practices may check unethical conduct or castigate the outlaws, but they may not help the employees evolve as moral individuals at workplace. Ethical education is a lifetime process and is not a cramming exercise. Employers should create an environment that nudges employees to be morally sound by reflecting moral values. They should make honesty, truth, fairness, sincerity, community service, moral mettle and reverence for others their guiding principles in business dealings (Okpo, 2020 ). The benefits of ethical establishments are manifold. Employees find such businesses more appealing than others as they are seldom involved in scams. They are also favoured by investors, who target good governance and strong cultures as foundations of enduring value creation. Ethical codes have been lauded as a clear path to more sustainable and sound organisational behaviour (Adelstein & Clegg, 2015 ).

Cases of cooking the books such as Enron (Arnold & De Lange, 2004 ; Benston & Hartgraves, 2002 ; Reinstein & McMillan, 2004 ), World Com (Wang & Kleiner, 2005 ), Tyco (Sorkin & Berenson, 2002 ), Sub-prime Mortgage Crisis (Adjei, 2010 ), Satyam (Bhasin, 2016 ) and the garment industry disaster in Bangladesh (Taplin, 2014 ) have raised ethical awareness and demonstrated that companies can suffer acute reputational and financial loss when their unethical transactions are discovered (Banerjee, 2015 ). When such incidents come to light, they frequently include a huge scandal that has a significant influence not just on the organisation, but also the entire industry or even the global economy (Halinen & Jokela, 2016 ). The PMC Bank crisis was a signal to the nation of a larger problem in the Indian banking system that needs to be fixed with basic governance reforms (Gupta, 2021 ). The regulatory body should have acted sooner to avoid a situation that caused panic among depositors, some of whom had deposited their entire life savings in the bank. Despite its immense resources and power, the RBI chose to focus on routine checks rather than digging further. According to Dastidar ( 2016 ), despite the fact that appropriate law has been adopted to control banking activities in India and to provide a fairly competitive environment, the regulations and penalties are insufficient to guarantee operations in a disciplined manner. While bankers receive behavioural training, the routine monitoring of staff behaviour is insufficient. Customers are either unaware of how to file a complaint against bank employees with a higher authority or simply disregard the process, believing it to be inconvenient.

Therefore, business ethics and corporate governance should be a part of all accounting and business curriculums (Abdolmohammadi, 2008 ; Acevedo, 2013 ), particularly in the current times, when the line between our personal and professional life has gotten increasingly blurry. Work and life are more linked than they have ever been (a trend invigorated by the COVID-19 pandemic). This is partly because Millennials and Generation Z spend a large time at work and are far more connected through video-communication and social media platforms such as Google, Facebook, LinkedIn, Twitter and WhatsApp. There are rules to follow, clients to serve, contracts to honour and communities to interact with, at jobs. Eventually, exposure to each can help enhance the understanding about ethics. A significant question that begs to be answered is “How can companies assist their employees in using the workplace as a character-developing laboratory?”.

One of the ways is experiential learning. For instance, in January 2002, social media went gaga after a video of a farmer being mistreated at a Mahindra car dealership went viral. The Chairman of the Mahindra Group was also informed of the occurrence. He stated that the key value is to protect an individual’s dignity, and that if someone violates the policy, it would be dealt with quickly. The Chief Executive Officer of the Mahindra Group was quick to respond too: “Dealers are an integral part of delivering a customer centric experience & we ensure the respect & dignity of all our customers. We are investigating the incident & will take appropriate action, in the case of any transgression, including counselling & training of frontline staff” (Khatri, 2022 ). Thus, learning by doing is hands-on and engaging, with the instructor acting as a guide. Nevertheless, experiential learning has been sluggish to take off as a technique for business ethics training (Meisel, 2008 ), although it has been popular in academic circles and management development programmes.

Professor Scott Reynolds proposes “a neurocognitive model of the ethical decision-making” (Reynolds, 2006 ) by initially pointing out his findings to the four-step process first theorised by Rest ( 1979 , 1986 ). The recognition of the ethical dilemma, according to Rest, is the first step in making ethical decisions. The individual then takes an ethical decision, declares an intention to act ethically and ultimately acts ethically. Ethics education, however, is a contentious topic. Some people argue that ethics cannot be learned (McKenzie & Machan, 2003 ). Others feel that ethics can be imparted, although they differ with respect to the method of delivery (Gautschi & Jones, 1998 ; Pfeffer, 2003 ).

According to the neurocognitive paradigm (Reynolds, 2006 ), ethics education is feasible—ethical decision-making can be enhanced through a variety of methods. However, the model recommends that methods of instruction should be tailored to the situation at hand. Ethics education should concentrate on the “mental structures of prototypes” (Reynolds, 2006 , p. 745) and moral standards in order to be effective, but it should be accomplished through a variety of methods. Employees may join an organisation with strongly ingrained preconceptions about managerial challenges such as corruption, scam, deception and harassment, which, regrettably, may not reflect what the organisation considers to be the morally suitable outcome in some situations. This is not to say that these prototypes cannot be changed. Ethics education must confront deep-rooted stereotypes and dig them out of unconscious processing of the employees so that they can be reviewed and modified accordingly. Role-playing and small-scale group discussions are examples of activities that can help achieve these goals (Gioia, 1992 ).

Likewise, the organisation must offer fresh prototypes for new ethical circumstances as they arise, and employees must be exposed to such prototypes on a frequent basis (Reynolds, 2006 ). As a case in point, there is growing consensus on previously uncharted ethical territory such as inspection of electronic mail, staff supervision and genetic screening (Beauchamp & Bowie, 2004 ); employees can consolidate them into their decision-making based on the extent to which organisations impart these norms consistently. The intense, yet gradual, indoctrination of ethically sound prototypes will spontaneously result in ethical outcomes by employees. Regardless of the significance of prototypes, the neurocognitive model supports an age-old pedagogical belief that ethics education should offer broad principles or benchmarks for decision-making (Sims, 2002 ). The corporate environment is always changing, and in the virtual workspace, employees are frequently working in new environments where conventions have yet to be formed and prototypes are limited. Therefore, employees frequently count on their higher-order cognitive skills (Stenmark et al., 2020 ), and, as any skilled tradesman, they require the tricks of the trade to do so effectively (Stenmark et al., 2019 ). The more an organisation can equip employees with moral norms to apply in diverse circumstances (as well as opportunities to apply them), the more likely they will utilise them to effectively solve their issues. To effectively mould ethical behaviour, organisations must offer tools for innovative ethical decision-making and a steady stream of pre-set paradigms with built-in moral implications (Reynolds, 2006 ).

Organisations can also adopt “Performing a Project Premortem” which, in a corporate setting, occurs at the start of a project, allowing it to be enhanced rather than autopsied (Klein, 2007 ). For instance, in the virtual space, a bank conducted a session to identify the best possible practices of serving the customers seeking financial statements by contacting customer care via phone. In this session, the bank manager sought responses from customer care executives, asking them how would they prevent unauthorised access and confirm the authenticity of a customer—establishing contact through phone—before releasing a financial statement via email. One of the executives responded that he would ask the account number, branch address, date of birth, registered mobile number and email credentials before releasing the statement to the customer. Another executive stated that apart from seeking the aforementioned details, he would also encrypt the financial statement with the account holder’s Customer ID Footnote 16 so that only the legitimate person could access it. The premortem allowed the customer care executives to adopt best practices while rendering services in the new normal so that third parties might not use confidential data in ways that were inconsistent with the bank’s ethical values. Such exercises can be undertaken from time to time to assess the employees’ ethical compliance and elicit a paradigm shift in the way people think about character development in the virtual workplace.

• Information management

In this age of widespread digitalisation, an individual intending to open a bank account is expected to submit numerous personal documents to confirm their domicile. While this information is expected to remain confidential, the bank assumes control over the shared data, and indicates a possibility of using it for internal purposes if it so chooses. Likewise, if an individual avails credit from a bank, the latter may seek myriad information, considering itself to be a majority stakeholder in the transaction. However, if a depositor enquires about how the bank uses their funds and who it lends to, the bank is likely to respond with a frigid silence (Bakar et al., 2019 ). The average person rarely has the opportunity to question the bank, which is a biased practice given that deposits are the lifeblood of the Indian banking industry. They hold more than half of the nation’s savings and greater than 80% of a bank’s liabilities. In comparison to China, Hong Kong and Singapore, India’s reliance on deposits is the highest among emerging economies (Karthik, 2021 ). However, depositors have few options to safeguard their deposits. Simply said, deposits are critical to the banking system, but banks rarely go to the same lengths to safeguard depositors’ interests and privacy as they do for major firms. The failure of PMC Bank in India, along with many others from the private and the cooperative sector, makes for a compelling reason for transparency and fair disclosures on the part of banks as well as regulatory authorities. In each of these circumstances, several rules had to be relaxed in order to prevent the bank’s failure from affecting the country’s financial system. The PMC Bank case raises important concerns about the monetary authority’s efficacy as a regulator. Additionally, it draws attention to the critical flaws in Indian banking industry’s risk-management procedures (Hafsal et al., 2020 ), particularly in the loosely regulated cooperative banks.

Public awareness of deposit insurance is abysmally low in India, which limits informed decisions by depositors (Nayak et al., 2018 ; Singh, 2015 ). Moreover, India follows a partial deposit insurance system; in the event of a bank failure, only a capped amount is received by the depositors of a single bank. However, people believe their money is safe the moment they deposit it with a bank, ignoring the fact that banking is just another business (Kaul, 2020 ). Quantitative statistics are frequently included in the banks’ annual reports. They include information on deposits, loans and advances, capital adequacy, income recognition, asset quality, provisioning against bad debts, etc. Nonetheless, when it comes to loans and advances, it is generally the qualitative part that causes a bank to fail. PMC Bank was one of the several banks in India where blanket lending practices resulted in capital erosion. The case right now is a call for more transparency in India’s banking system, particularly in a virtual world marked by extensive digitalisation.

Future research directions

Studies so far have examined the role of ethics in diverse situations and sectors. However, there is limited research on whether ethics education should be conducted differently for stakeholders in remote workplace as against on-site work. Also, if organisations are attentive to goodwill and brand name, what are the causes that deter them from ethical conduct? Furthermore, if performance-linked incentives can motivate employees to achieve promising outcomes, can an organisation introduce ethics-linked incentives to boost employee productivity? Previous studies have rarely investigated how seamless information sharing with the public may moderate the opacity of an organisation’s performance and reinforce informed decisions by the customers. This is particularly important in the current times of risk and uncertainty wherein ethical concerns are perturbing the stakeholders of most businesses, particularly banks. In the banking industry, assessing behavioural characteristics for risk mitigation is still unexplored. The personality factor can aid in understanding the mental aspects as well as the reasons for the association of dark triads with economic crimes. Researchers can explore these uncharted areas.

Conclusion and recommendations

The PMC Bank crisis is only the most recent manifestation of deeper, unresolved issues in India’s banking industry. The persistent concern of non-performing assets (NPAs), which was exacerbated in the case of cooperative banks in India due to poor governance and a risky business strategy, lies at the core of the crisis. Regulators have, sadly, just responded to symptoms thus far; there is little indication that they have a thorough knowledge of the underlying condition. In order to prevent crises like the one that has befallen PMC—where an astonishing 73% of the loan book was represented by one corporate group with close relationships to the bank—cooperative banks need substantial restructuring in their governance. The direct appeal made by numerous irate depositors, which was widely shared on social media, is another intriguing aspect of how the public has responded to the PMC Bank situation. Some of the viral videos show utterly upset, destitute depositors literally screaming and begging for aid. Such a response is difficult to envisage in developed economies, where the unsatisfied public’s response would more likely be indignation at the incompetence of politicians and regulators, than one of entreaty.

While the COVID-19 pandemic has compelled businesses to embrace virtual space to a greater extent than earlier, this calls for a comprehensive review of business ethics, among other things. Ethics education is feasible, and ethical decision-making can be enhanced through a variety of methods. The corporate environment is ever changing, and in the virtual workspace, employees are frequently working in new environments where conventions have yet to be formed and prototypes are limited. Organisations must offer fresh prototypes for new ethical circumstances as they arise, and employees must be exposed to such prototypes on a frequent basis. To effectively mould ethical behaviour, organisations must offer a steady stream of pre-set paradigms with built-in moral implications.

At the same time, bankers must be transparent for customers to receive the pertinent information they need to make sound financial decisions. Customers frequently lack the resources and financial language expertise necessary to grasp the complex financial products and services. As a result, they are unable to comprehend or obtain accurate, understandable and/or thorough information regarding a variety of products, thus leading them to choose poorly or inadvertently. There are inherent information asymmetries in the financial sector, with bankers having more information than customers, which burdens the latter due to low financial literacy and complexity of financial products. Therefore, thorough disclosures regarding the product and its features become a crucial component to close this gap. At the same time, these disclosures should not result in information overload, which could reduce the value of the advice given. Fair and forthright disclosures give clients the ability to compare various products from different service providers, enabling them to make an informed choice. An enhanced customer knowledge would also encourage competition, which would improve the standard of services provided by the digital platforms. Fair customer treatment typically entails moral behaviour, appropriate sales tactics and handling of client information. Even though fair treatment concepts are well understood, it is challenging to hard-code these in regulations. However, the fundamental idea that the consumer should always be treated fairly and with respect persists. This takes on increased significance in digital banking, because the target clients may comprise typically small customers with little access to or knowledge of grievance redressal mechanisms. Banks can set up cyber security awareness initiatives to inform clients of the risks associated with phishing, malware, wire fraud, and more when using online banking. Customers can have access to a distinctive online library of learning aids, which includes newsletters, email campaigns, movies, posters and articles on information security awareness. The first essential step towards effectively managing risks, reducing fraud and ensuring compliance is to educate the board of directors and customers about social engineering risks and best practices in information security.

Market discipline refers to a practice by which market actors, such as depositors and shareholders, oversee bank risks and take steps to minimise unwarranted risk-taking.

In fractional reserve banking systems, banks hold limited amounts of cash hoping that all depositors will not withdraw at the same time. Nonetheless, banks are exposed to the risk of self-fulfilling panics caused by mass hysteria that leads their customers to withdraw the funds at the same time for fear that the institution may go kaput.

A loan for which the principal or interest payment is more than 90 days past due.

Depositors who attempt to withdraw their money from a bank in a coordinated effort because they believe the bank will fail.

Central Bank (Monetary Authority) of India.

A deposit insurance policy that protects against losses on bank deposits if a bank goes bankrupt and has no funds to pay its depositors, forcing it to liquidate.

Banks registered in the second schedule of the Reserve Bank of India Act, 1934.

The “Directions” were later extended up to June 30, 2021.

Urban Co-operative Bank.

Since it is a classic case of cooking the books, diverse sources have claimed different figures.

Core banking system is the core ledger and account management system for banks. It collects relevant financial as well as non-financial information, data and documents for all the depositors and borrowers. It also automatically prepares daily accounts for a bank as a whole, which are used for regulatory and compliance purposes. “As on March 31, 2019, of the 1542 primary cooperative banks in the country, over 1436 banks had implemented CBS”.

The exact number of deaths is still unknown, although the cause is “severe stress” caused by a suspension of withdrawals.

The autonomous body instituted by the RBI to insure bank deposits in the event of bank failure.

Centrum Capital is a Bombay Stock Exchange-listed entity.

A fintech company.

A unique identification number given to every customer holding an account with a bank.

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Teaching notes

This study explores the importance of business ethics, information sharing and transparency to build an information-driven society by scouting the case of Punjab and Maharashtra Co-operative (PMC) Bank, India, which defaulted on payments to its depositors and was placed under Reserve Bank of India’s directions due to a massive fraud perpetrated by bank officials. The crisis worsened when uninformed and panic-stricken investors advanced their narrative through fake news peddled via social media channels, resulting in alarm that caused deaths of numerous depositors. It exposed several loopholes in information management in India’s deposit insurance system and steered the policy makers to restructure the same, thus driving the country consistent with its emerging market peers. The study further identifies best practices for aligning employees towards ethical behaviour in a virtual workplace and the pedagogical approaches for information management in the new normal.

Target Audience

Educators in the field of banking, business ethics, corporate governance and organizational behaviour; practitioners; various stakeholders of banks; and policy makers.

Learning Objectives

[1] To offer practical suggestions for creating an environment conducive to ethical learning;

[2] To explore the importance of business ethics, information sharing and transparency for building an information-driven society;

[3] To identify best practices for aligning employees toward ethical behaviour in a virtual workplace, and assessing them;

[4] To identify pedagogical approaches for information management and ethics education in the new normal.

Questions for Discussion

[1] What is the overall problem presented in this case?

Answer. The case explores the importance of business ethics, information sharing and transparency to build an information-driven society by scouting the case of Punjab and Maharashtra Co-operative (PMC) Bank, India, which defaulted on payments to its depositors and was placed under Reserve Bank of India’s (RBI) directions due to a massive fraud perpetrated by bank officials.

[2] What are the factors affecting the problem(s) related to this case?

Answer. The case investigates the changing paradigm of business ethics in a dynamic world that is gradually shifting towards virtual technology in the milieu of the global pandemic.

[3] How can an organization align employees in a virtual workplace?

Answer. Organizations must offer fresh prototypes for new ethical circumstances as they arise, and employees must be exposed to such prototypes on a frequent basis. As a case in point, there is growing consensus on previously uncharted ethical territory such as inspection of electronic mail, staff supervision, and genetic screening; employees can consolidate them into their decision-making based on the extent to which organizations impart these norms consistently.

[4] What are the objectives of project premortem?

Answer. The objectives of project premortem are to assess the viability of a project at the start of a project itself, allowing it to be enhanced rather than autopsied.

[5] What are the challenges in the virtual work environment that educators have been facing in the new normal?

Answer. During the pandemic, not only the students, but also the educators began a new era of learning. For educators who had been accustomed to textbook teaching, the enormous technological innovation in the education sector has been both demanding and novel. To make their online classes seamless and compelling, they had to learn far more than their students. During the online classes, educators had to push students to be more engaged and active. They made certain that the lessons were fresh and original enough for pupils to follow and grow from them. Teachers led interactive sessions to ensure that every student in the class was involved. Instead of remaining at home and keeping their beliefs to themselves, they were encouraged to express their views and have healthy discussions. Both students and educators went above and beyond to make online learning a rewarding experience. As a result, the educational sessions turned out participatory and therapeutic in nature.

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Nayak, S., Chandiramani, J. A crisis that changed the banking scenario in India: exploring the role of ethics in business. Asian J Bus Ethics 11 (Suppl 1), 7–32 (2022). https://doi.org/10.1007/s13520-022-00151-4

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DOI : https://doi.org/10.1007/s13520-022-00151-4

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Govt shares data on online banking fraud and how many cases solved

The amount involved in online banking frauds declined.

Cases related to online frauds have come down by about 17.5 per cent in FY'22 to ₹ 128 crore as against ₹ 160 crore recorded in the previous fiscal, the Rajya Sabha was informed on Monday. Comprehensive steps have been taken to tackle online banking frauds. 

“As per RBI data on frauds reported by Scheduled Commercial Banks (SCBs) under the category “Card/Internet- ATM/Debit Cards, Credit Cards and Internet Banking", the amount involved in such frauds, based on the year of occurrence, has declined from Rs. 185 crore in the financial year 2019-20 to Rs. 160 crore in the financial year 2020-21 {year-on-year (Y-o-Y) decline of 15.2%} and to Rs. 128 crore in the financial year 2021-22 (Y-o-Y decline of 17.5%),"Minister of State for Finance said in the Lok Sabha.

He further said that as per information received from the National Crime Records Bureau (NCRB) regarding cases registered in respect of such frauds, the latest published data pertains to the year 2020, according to which, in respect of frauds related to ATMs/ credit cards / debit cards, online banking and OTP for the year 2018 to 2020, 16450 cases were registered and 8981 cases were disposed of.

He was replying to Opposition's question on whether the RBI has proposed to make cardless cash withdrawal facility available across all banks and ATM networks using the Unified Payment Interface (UPI), in addition to enhancing ease of transactions, to help prevent frauds such as card skimming, card cloning, etc.

"RBI has issued instructions on Cyber Security Framework in Banks and have mandated SCBs to report all unusual cyber incidents to RBI within two to six hours of occurrence of such incidents. These incidents are analysed for the pattern of attack and the vulnerabilities exploited, and where needed, advisories/alerts are issued to the banks so as to avoid repeat attacks/exploitation of the same vulnerabilities,: the Minister informed the House.

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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Analyzing Frauds in Banking Sector and Impact of Internet Banking on Its Customers: A Case Study of Bank of Maharashtra

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Cases of Cyber Frauds

The National Crime Records Bureau (NCRB) compiles and publishes the statistical data on crimes in its publication “Crime in India”. The latest published report is for the year 2022.

 ‘Police’ and ‘Public Order’ are State subjects as per the Seventh Schedule of the Constitution of India. States/UTs are primarily responsible for the prevention, detection, investigation and prosecution of cyber crimes through their Law Enforcement Agencies. The Central Government supplements the initiatives of the State  Governments through advisories and schemes for the capacity building of their Law Enforcement Agencies. To strengthen the mechanism to deal with cyber crimes in a comprehensive and coordinated manner, the Central Government, through Ministry of Home Affairs has set up the ‘Indian Cyber Crime Coordination Centre’ (I4C) to deal with all types of cyber crime in the country.

The ‘National Cyber Crime Reporting Portal’ ( https://cybercrime.gov.in ) has been launched, as a part of the I4C, to enable public to report incidents pertaining to all types of cyber crimes, with special focus on cyber crimes against women and children. Cyber crime incidents reported on this portal, their conversion into FIRs and subsequent action thereon are handled by the State/UT Law Enforcement Agencies concerned as per the provisions of the law.       The ‘Citizen Financial Cyber Fraud Reporting and Management System’, under I4C, has been launched for immediate reporting of financial frauds and to stop siphoning off funds by the fraudsters. Since inception of Citizen Financial Cyber Fraud Reporting and Management System, more than Rs. 1200 Crore have been saved in more than 4.7 lakh complaints. A toll-free Helpline number ‘1930’ has been operationalized to get assistance in lodging online cyber complaints. The State/UT wise details of Citizen Financial Cyber Fraud Reporting Management System during the period 1.1.2023 to 31.12.2023 are at the Annexure. Till date more than 3.2 lakhs SIM cards and 49,000 IMEIs as reported by Police authorities have been blocked by Government of India.

CERT-In issues alerts and advisories regarding latest cyber threats/vulnerabilities and countermeasures to protect computers, mobile phones, networks and data on an ongoing basis. CERT-In, through RBI, has advised all authorised entities and banks issuing pre-paid payment instruments (wallets) in the country to carry out special audit by CERT-In-empanelled auditors, close the non-compliances identified in the audit report and ensure implementation of security best practices.  CERT-In and the Reserve Bank of India (RBI) jointly carry out a cyber security awareness campaign on ‘beware and be aware of financial frauds’ through the Digital India Platform.

To spread awareness on cyber crime, the Central Government has taken steps which, inter-alia, include; dissemination of messages through SMS, I4C   social   media   account i.e.  X (formerly Twitter)  (@Cyberdost), Facebook(CyberDostI4C), Instagram (cyberdostI4C), Telegram (cyberdosti4c), Radio campaign, engaged MyGov for publicity in multiple mediums, organizing Cyber Safety and Security Awareness weeks in association with States/UTs, publishing of Handbook for Adolescents/Students, etc. The States/UTs have also been requested to carry out publicity to create mass awareness.

State/UT wise details of Citizen Financial Cyber Fraud Reporting Management System during the period 1.1.2023 to 31.12.2023

This was stated by the Minister of State for Home Affairs, Shri Ajay Kumar Mishra in a written reply to a question in the Lok Sabha.

RK/ASH/AKS/RR/PR/AK/509

Cyber Frauds In The Indian Banking Industry

Meaning of the term cyber crime, cyber crime in banking sector.

• Hacking: It is an unlawful access to a system to degenerate or to see any misguidedly information.
• Phishing: It includes a procedure to collect private data like username, password, one time password etc.
• Vishing: A criminal act for social designing via phone to access an individual and budgetary data from population with the goal to attain monetary benefits.
• Spamming: spontaneous messages sent to a mass population trying to constrain the message in individuals who might not get it.
• ATM Skimming and Purpose Offer Wrongdoings: It is the most developed method of trading off ATM machine or POS by introducing a gadget on the keypad which copies the same thing. Effective execution of skimmers through ATM machines gather the card numbers and personal information that are later repeated to do fake transactions

Internet Banking in India

• Enlightening Framework: This category gives data about credit plans, branch areas, financing costs to the clients. The client can download different utilities according to their personal needs. There is no sensible possibility of any unapproved individual getting into the creation arrangement of the bank.[4]
• Open Framework: This gives data to client about his record balance. The data can be checked by clients after confirmation and signing through passwords.[5]
• Value Based Framework: In this category the clients can do changes through it's framework and they are directly transferred to the clients record. A bi directional change takes place between the bank and client and between client and the outsider. This framework is used trough instruments like http and https. E keeping money incorporates Web Saving money, Portable Managing an account, RTGS, ATM's, Master Cards, Charge Cards and keen cards and so forth.[6]
• Loss of proof
• Easy to access
• Capacity to store information in little place.

Impact of Cyber Crime on Banking Sector

Material and method used, india's first atm card fraud.

• Banks are becoming more and more focus as all the people's money is held with banks.
• The security of their clients is at huge risk since it has turned out to be anything but difficult to hack their own database.
• The quantity of cases by cyber cell has remained low throughout the previous years, with just 20 percent achieve rate.
• The society should report these cases to the Digital Wrongdoing Branch rather than involving the branches for quick and strict activities.
• Projects should be started to aware the public about the continuous situations and forthcoming situations.
• Punishments should be practiced completely to stop these issues and punish the assailants.
• The legislature should keep a track on the working system of Huge information banks.
• There should be quick dispose of cases, to meet the complaints and fabricate certainty among the general public.
• The law implementation should be strict and occasionally monitor such wrongdoings.
• Bank statement of the last six months of the concerned bank.
• Make a copy of SMSs received related to the alleged transactions.
• Take copy of your ID proof and address proof as shown in the bank records.
• Lodge a complaint in your nearest police station explaining the complete incidence along with the abovedocuments.
• Protestors are likely to get caught
• Online protests get due attention
• Support is gained quickly.
• Global reach through internet.
• Kharouni, L (2012) Automating Online Baking Fraud Automatic Transfer System: The Latest Cybercrime Toolkit
• Liu, J., Hebenton B & Jou , S Handbook of Asian Criminology.
• Daniel, E (1999), Provision of electronic banking in the UK and Republic of Ireland, International Journal of Book Marketing, Vol 17 No.2
• Reserve Bank of India, Report on Internet Banking, available at: https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=243#ch2 (Last Visited: Oct 11, 2019, 10:25 PM).
• Dheenadhayalan V., Automation of Banking sector in India, Yojana, February, (2010) p.32.
• Murashbekov, О B. (2015). Methods for Cybercrime Fighting Improvement in Developed Countries. Journal of Internet Banking and Commerce.
• Reserve Bank of India, Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds, (21 Jan 2011).

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Bank frauds involving cards, internet, cash rise in six months

According to Reserve Bank of India (RBI) data, 2,331 fraud cases involving Rs 87 crore were reported by banking entities during the six-month period as against 1,532 frauds involving Rs 60 crore.

Banking frauds involving cards and internet have gone up during the six-month period ended September 2022 amid the rapid progress made in the area of digitisation,

During 2021-22, the average amount of fraud decreased substantially. “Based on the date of occurrence of frauds, advances-related frauds formed the biggest category prior to 2019-20. Subsequently, however, in terms of number of frauds, the modus operandi shifted to card or internet- based transactions,” the RBI’s Report on Trend and Progress of Banking in India.

Additionally, cash frauds are also on the rise. Banks reported 589 frauds involving Rs 81 crore in cash-related issues during the six-month period September 2022 as against 245 frauds involving Rs 51 crore in the same period of last year.

The RBI said total frauds, including advances, forex, inter-branch accounts, deposits and off-balance sheet items, came down to 5,406 cases involving Rs 19,485 crore during the six-month period as against 4,069 cases for Rs 36,316 crore.

According to the RBI, the number of fraud cases reported by private banks outnumbered those by PSU banks for the second consecutive year in 2021-22. In terms of the amount involved, however, the share of PSBs was 66.7 per cent in 2021-22, as compared with 59.4 per cent in the previous year.

Fraudsters create a third-party phishing website which looks like an existing genuine website, such as a bank’s website or an e-commerce website or a search engine. Links to these websites are circulated by fraudsters through SMS, social media, email and Messenger. Many customers click on the link without checking the detailed Uniform Resource Locator (URL) and enter secure credentials such as PIN, One Time Password (OTP) and password which are captured and used by the fraudsters.

Imposters call or approach the customers through telephone call, social media posing as bankers, company executives, insurance agents and government officials. To gain confidence, imposters share a few customer details such as the customer’s name or date of birth. Fraudsters install skimming devices in ATM machines and steal data from the customer’s card. Fraudsters may also install a dummy keypad or a small pinhole camera, well-hidden from plain sight to capture ATM PIN.

Meanwhile, to streamline reporting, enhance efficiency and automate the payments fraud management process, the RBI said the fraud reporting module is being migrated to DAKSH – Reserve Bank’s Advanced Supervisory Monitoring System. The migration will be effective from January 01, 2023. Entities should commence reporting of payment frauds in DAKSH from this date.

In addition to the existing bulk upload facility to report payment frauds, DAKSH provides additional functionalities, viz. maker-checker facility, online screen-based reporting, option for requesting additional information, facility to issue alerts / advisories, generation of dashboards and reports, the RBI said.

All RBI authorised payment system operators (PSOs), providers and payment system participants operating in India are required to report all payment frauds, including attempted incidents, irrespective of value, either reported by their customers or detected by the entities themselves. “This reporting was earlier facilitated through Electronic Data Submission Portal (EDSP) and is being migrated to DAKSH,” it said.

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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...

...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...

...understand the fraudulent transaction made in his own account. 9. In order to safeguard the complainants account from further fraud , the Internet Banking ID and password of the complainant...transactions are possible in the opposite parties internet banking , unless the customer compromises his personal identification. The customer had not registered his mobile number for transaction of debit alerts and hence he could no...an upgrade on our internet banking site to enable better security on our new internet banking system and in the meantime on 15.11.2014 a sum of Rs.1,20,465/- was debited from his account in favour of unknown benefi...

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According to Indian Cyber Crime Coordination Centre (I4C), on an average 7,000 cybercrime complaints were registered per day in May 2024, a jump of 113.7% between 2021-2023 and 60.9% from 2022-2023, and 85%of them were financial online frauds.

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