All About Banking Fraud in the Public Sector

30 December, 2024

Synopsis

• Banking fraud in the public sector has a direct impact on the economy and the banking system.
• Some of the types of public sector banking fraud are – loan fraud, cheque fraud, and internet banking fraud.
• Using technology and creating awareness can help prevent these frauds.
  
  

Banking fraud has a direct impact on the economy, consumer trust, and the overall functioning of the banking system. Public sector banks (PSBs) in India are government-owned financial institutions. These banks play an important role in the country’s financial system, and any form of fraud can undermine public confidence and create long-lasting damage.

What Are Government Banking Frauds?

Financial fraud in government involve illegal activities that harm banks and you as their customer. Employees, customers or external entities can commit such frauds. Frauds like corruption, misuse of power, or illegal transactions can occur. Although strict regulations and checks are used by banks, these systems can sometimes be misused to commit fraud.

Various Frauds in the Banking Sector

Some of the common frauds are:

• Loan Frauds

In such cases, individuals or companies provide incorrect information or fake documents to get loans. They show an inflated financial status, forge documents, or hide liabilities to secure loans. Once the loan is approved, the borrower defaults or diverts the loan for personal use, with no intention of repaying the loan.

• Cheque Frauds

Cheque fraud is conducted by manipulating cheque details or forging signatures. Fraudsters withdraw large amounts from another person’s account using counterfeit or altered cheques.

• Internet Banking Fraud

Hackers often steal your login credentials or use phishing attacks to trick you into giving away sensitive banking information. Once they have access to your bank account, they can transfer funds or make unauthorised transactions.

• ATM Frauds

In this type of fraud, criminals install skimming devices on ATMs to capture card information when they go to withdraw money. They then use this stolen data to create counterfeit cards or withdraw cash from your bank account.

• Public Sector Embezzlement

Employees may sometimes participate in the fraud by misappropriating funds. This happens when an employee uses their position to divert funds for personal gain, often in collusion with external parties.

• Wire Transfer Fraud

Fraudsters may send funds through wire transfers using fake identification or fake company details. This causes financial losses for the bank, as well as reputational damage.

• Fake Investment Schemes

The bank can be misled by fake investment firms that promise them high returns. Once the investment is complete, the bank realises that the firm was fake, leaving the bank with heavy losses.

Efforts to Combat Fraud

The government and bank regulators have measures in place to prevent fraud.

• Use Of Technology

Many banks have implemented advanced technologies such as artificial intelligence (AI), machine learning, and data analytics to detect suspicious activities. These systems can flag unusual transactions, identify potential fraud, and block unauthorised transfers in real time.

• Stricter Regulatory Framework

The Reserve Bank of India (RBI) has introduced a framework that banks must follow to detect and prevent fraud. Banks are now required to have strong anti-fraud policies, conduct regular audits, and report fraudulent activities to the RBI promptly.

• Public Awareness

Public awareness campaigns educate you as a customer on how to protect yourself from banking fraud. This includes identify phishing attempts, risks of sharing banking information, and using secure internet banking practices.
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• Enhanced Security Measures

Banks use steps like two-factor authentication (2FA), secure mobile banking apps and encrypted online transactions to keep your data safe and prevent its misuse.

Being Vigilant Can Help Public Sector Banks Avoid Fraud

Banking fraud in the public sector harms both banks and India’s economy, causing financial losses, reputational damage, and higher operational costs. Public banks must invest in technology, enforce regulations, and collaborate with law enforcement to safeguard against fraud.

Join Vigil Army, where Vigil Aunty will decode various frauds and give people a heads-up on the dos and don’ts of combating frauds online. To join the Vigil Army, send ‘Hi’ to her via WhatsApp number: 7290030000.

*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.