Fraud is considered as any dishonest act or behaviour in which one person gains the advantage over others, or the person intends to gain some advantage over another person. Bank fraud is considered as one of the white-collar crimes. The bank fraud is defined as the act of using illegal means to obtain money or other assets held by a financial institution. There are many types of Bank Frauds. Loan Fraud is one of the types of Bank Frauds. The offender scams the people who are looking for loans by giving false hope of providing higher amounts of loans at a lower interest rate.
The Fraud by insiders and Fraud by others are two main types of Bank frauds. Fraud by insiders consists of Rogue traders, Wire fraud, Theft of identity, Fraudulent loans, Demand draft fraud and Forged/Fraudulent documents (uninsured deposits), etc. Fraud by others consists of Accounting Fraud, Credit card fraud, Bill discounting fraud, Booster cheques, Cheque kiting, Stolen payment cards, Forged currency notes, Phishing and internet fraud, Impersonation and theft of identity, Fraudulent loan applications, Duplication/skimming of card information, Money laundering and Computer frauds in banks, etc.
Statistics of Loan Frauds
The Government has issued a framework for timely detection, reporting and investigation relating to the frauds in Public Sector Banks in February 2018. The loan frauds as a percentage of total banking frauds jumped from 55% in 2018 to 90% in 2019. The main reason behind the sharp spike in the loan frauds was because of a change in regulations. The Reserve Bank of India had stated in its report that the share of the public sector banks was as high as 90% in terms of the amount lost, and for the high-value frauds, the share of public sector banks rose higher to 91.6%. The reason behind the loan frauds was the lower due diligence with regards to the trend of instant five minutes of online loans, same-day loans, etc. Hence, there is a rise in the frauds in the retail loan segment.
According to the Reserve Bank of India data, there are an unprecedented 6,801 frauds (totalling to INR71,500 crores) were detected in the financial year 2019. It amounts to a 15% rise in volume and 80% climb in volume if compared with last year.
Fraudulent Loans and Loan Applications
A fraudulent loan is the one in which the borrower is a business entity controlled by a dishonest bank officer/an accomplice. After taking the loan, the borrower declares bankruptcy or vanishes, or it may even be a non-existent entity, and the loan is merely a fraud to conceal a theft of a large sum of money from the bank.
Many people use false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting frauds. They also overstate profits in order to make a risky loan appear to be a sound investment for the banks.
How does the loan fraud take place?
First and foremost, an individual will receive a call or SMS or e-mail by the offender. He will contact you to offer the loan. The offender will introduce him as the officers/Representatives/Agents of reputed banks or financial institutions. The offender will inform that you are eligible for a special loan offer and will promise that they will provide a high amount of loans at meagre interest rates. After you agree to avail such loan offer, then they will ask you to provide the soft copy of ID and Address Proof, PAN Number, Bank Account Details, Pay-slips, Income Tax Returns, Copy of Cancelled Cheque, Account Statement, etc. through e-mail or WhatsApp or any other online modes.
After receiving the documents, the offender will send you a loan application form and will ask you to fill up the same and then send them the scanned soft copy. The offender will intimate that the loan amount will be approved within a few days. Later, the offender will send you the soft copy of the loan approval letter. After sending such loan approval letter, they will ask you to deposit money to a particular bank account and will state the reasons that the money asked to be deposit are for the purpose of File charges, processing fees, refundable security amount, etc.hence, the loan frauds are done in this manner.
Punjab National Bank Scam
The Punjab National Bank (PNB) scam is related to the fraudulent letter of the undertaking which was of worth INR10,000 crore issued by the bank. It has been dubbed as one of the biggest fraud in the banking history of India. On 10th March 2011, Nirav Modi got his first fraudulent guarantee, and he also managed to get 1,212 more guarantees over a period of next 74 months. The accused in his case were Nirav Modi, his maternal uncle Mehul Choksi, other relatives and some of the PNB employees. Bankers used fake Letters of Undertakings at PNB’s Brady House branch in Mumbai. The Letters of Undertakings were being opened in favour of the Indian banks for the purpose of import of pearls for a period of one year, but the RBI guidelines layout a total time period of 90 days from the date of shipment. The overseas branches of Indian banks ignored the guideline. Also, they failed to share the documents or information with the PNB. The employees of the PNB also misused the SWIFT network to transmit the messages to Allahabad Bank and Axis Bank on the requirement of fund. On 29th January 2018, PNB lodged an FIR with CBI.
The latest update as on 17th March 2020 is about the attachment of INR170 crore assets of Nirav Modi in PNB fraud case by Enforcement Directorate.
We can conclude that the adoption of technology comes with the evolution of time, but it is the responsibility of banks to protect the money of the people. The banks should take the rising graph of bank frauds seriously. Also, the banks must ensure that they follow the procedures and prudential practices which are framed by the Reserve Bank of India to prevent Bank Frauds. An individual should also take preventive measures to avoid such loan frauds. It is always advisable that among other things, an individual should research to ensure that they are authentic, a personal visit to the office, never pay the money before, always meet the officer in person and take all their credentials and verify them properly.