Banking on trust, losing billions: India’s bank fraud epidemic needs urgent answers
The total value of bank frauds tripled last year even as the number of cases fell—signalling bigger, bolder scams. The problem runs deeper than regulation: it’s about broken governance, eroding public trust, and the urgent need for tech-enabled vigilance.
The Reserve Bank of India’s annual report for 2024–25 highlights a chronic and worsening vulnerability in the country’s financial system: bank frauds. These are not just compliance or accounting problems, they threaten the very foundations of trust that banking depends on and pose a broader risk to systemic stability.
The numbers are deeply unsettling. Bank frauds aren’t just rising—they’ve exploded. The total amount lost to fraud tripled in just a year, from ₹12,230 crore in 2023–24 to ₹36,014 crore in 2024–25. And this surge came despite a decline in the number of reported cases—from 36,060 to 23,953. In other words, frauds are getting larger, not just more frequent—an alarming shift in the risk landscape.
No corner of the banking system is immune. Public sector banks, long viewed as the usual suspects, reported fewer cases than private banks, but still accounted for a staggering 71.3% of the total money lost. That’s largely because most frauds in these banks remain loan-related, typically involving much larger sums.
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Private banks, meanwhile, logged the highest number of cases—59.4% of all frauds in 2024–25—primarily in digital payments (via credit/debit cards and internet banking), where ticket sizes are smaller and aggregate losses lower.
The most troubling trend? Loan-related frauds still dominate. Though they made up only a third of total cases, they accounted for 92% of the money loss, underscoring the enduring threat of fake loans, fund diversion, and wilful default. It’s the oldest scam in the book—and still thriving.
Regulators, particularly the Reserve Bank of India (RBI), which has been more proactive than many of its global peers, have made concerted efforts to plug systemic loopholes that enable fraud. Yet the persistence of large-scale frauds despite these measures calls for deeper introspection, not just by the RBI, but also by bank boards and managements, who are supposed to form the first line of defence.
The repeated failure of these safeguards points to a more fundamental problem—one that regulation alone cannot solve: individual corruption, and the failure of those entrusted with protecting depositor and investor interests to discharge their responsibilities.
Two recent cases underscore this failure. In February, the RBI abruptly dismissed the board of New India Co-operative Bank and imposed operational restrictions. It later emerged that a general manager, now under arrest, had diverted large sums and brazenly walked out of the bank carrying bags of cash.
In the case of IndusInd Bank, as this paper reported, the board’s claim of ignorance about problems in its derivatives portfolio has been contradicted by an investigation by the Securities and Exchange Board of India (Sebi). This raises serious questions—at the very least about accountability, and at worst about culpability at the highest levels of the bank.
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But these incidents point to a more fundamental crisis: the erosion of public trust in banking institutions. Few sectors are as dependent on trust as banking. Depositors hand over their money believing it will be safe, and that banks will honour their commitments, whether it’s paying interest or returning principal, without fail. Once that trust breaks, the system unravels with alarming speed.
The collapse of Punjab and Maharashtra Co-operative Bank in 2020 is a case in point—it ultimately forced the RBI to take over as the sole regulator of co-operative banks, ending the earlier dual supervision with state registrars.
The rapid digitisation of banking has only compounded the problem. As banking coverage expands and digital transactions surge, so too does the scope for fraud, from phishing and vishing scams to rogue lending apps falsely posing as regulated entities.
A digital defence is critical—but still patchy
Both banks and the RBI must step up their digital game to tackle fraud more effectively.
Some efforts are already underway. MuleHunter, an artificial intelligence (AI) tool developed by the Reserve Bank Innovation Hub, can identify mule accounts—used to launder illicit funds—in near real-time and is currently in the testing phase.
But such tools must go further. Technologies like this are also needed to detect more complex frauds, especially “connected" lending to favoured parties, a persistent vulnerability in public sector banks, though private banks aren’t immune. The intricate web of modern financial transactions makes such scrutiny even more essential.
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AI must also be integrated into customer onboarding and KYC (know your customer) processes, where weak controls often lay the foundation for future fraud. A sharper focus on cybersecurity and the development of real-time response capabilities is no longer optional—it’s urgent.
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