Bank Frauds and Bad Loans

In its Report on Trend and Progress of Banking in India, the Reserve Bank of India (RBI) has diclosed that the reported number of frauds on banks increased by more than 16% to 4071 in the first half of the current fiscal (2021-22) from 3499 in the same period of the last fiscal, but the amount involved in frauds fell from Rs. 64261 crore to Rs 36342 crore in the same period.

It’s interesting to note that private sector banks saw a higher number of frauds vis-a-vis public sector banks, indicating a majority of card, internet or cash-related cases of small values. However, in value terms, public sectors banks had a higher share that indicates the predominance of high-value frauds.

The positive aspect is that in the fiscal 2020-21, the reported number of cases of frauds declined to 7363 (Rs 138422 crore) from 8703 (Rs 185468) crore in 2019-20.

It may however be read with decine in the bad loans of banks that have fallen from 8.2% as on 31.03.2020 to 7.3% as on 31.03.2021 and further to 6.9% as on 30.09.2021.

But in its latest Financial Stability Report, the RBI’s stress tests project that bad loans may rise again to 8.1%. While private sector banks may see rise from 4.6% to 5.2%, bad loans of public sector banks may deterorate from 8.8% to 10.5%.

This seems to be logical, because a few loans propped up by Covid measures may turn delinquent, once the special dispensation ends in March’22. It’s therefore necessary to have a close oversight on such MSME loans, apart from some large industrial borrowers.

It is estimated that 5 to 20% of bad loans turn fraudulent, as diversion of funds is the main criterion to classify a loan account as fraud.

RBI Governor has assured that balance sheets of banks are strong with sufficient capital to mitigate future shocks, but whether provisions are made, or bad loans are sold to ARCs at discount, or the government infuses capital in the banks, it’s the public money that is at stake.

It’s therefore always advisable to strengthen analytics and supervision of banks to ensure that both bad loans and frauds are nipped in the bud, as far as possible.

–Kaushal Kishore


  1. Reading your post, Kaushal, as a private individual and not a banker, one thought springs
    to mind, neither a borrower nor lender be. But of course, that is how banks make their money…
    Thank you, Kaushal, for the expertly illuminating information.


    Liked by 1 person

    1. Thank you so much, Joanna, for appreciating the post. I agree it’s better to avoid loans, but here in India, one gets income tax reliefs on home loans from banks. Moreover, not a single big industrialist has flourished without taking loans.


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