According to the Reserve Bank of India (RBI), fraud cases in the banking sector increased in the first half of the current fiscal, even as the number of fraud cases fell significantly.

The number of fraud cases in banks rose to 14,483 in the April-September period of the current financial year from 5,396 in the corresponding period last year.

However, the amount of fraud was only 14.9% of the previous year's amount. The total amount fell significantly from ₹17,685 crore in April-September last year to ₹2,642 crore in the same period this fiscal.

In fiscal 2023, the total number of fraud cases reported by banks fell to its lowest level in six years, while the average number of fraud cases reached its lowest level in a decade, the banking regulator said. Based on the date of fraud occurrence, the average amount decreased in 2022-23, with the number of cases concentrated in card or internet-related fraud.

The number of fraud cases reported by private banks accounted for 66.2% of the total. In terms of the amount, the public broadcasters had a higher share.

While most fraud cases in public sector banks were related to advances, private lenders accounted for most cases related to cards, internet and cash.

“New technologies increase the efficiency and effectiveness of banking operations. However, this has also increased the risks of fraud and data breaches,” says the RBI.

“Protecting the system from these threats requires a concerted effort from all stakeholders, including regulators, banks and customers. For its part, the Reserve Bank has sought to update regulations to protect customers while ensuring innovation is not stifled,” the bank says the regulator.

According to RBI, frauds create reputational, operational and business risks for banks and undermine customer trust in the banking system with implications for financial stability.

Efforts from all stakeholders are needed to protect the banking system and payment system from the risks of fraud and data breaches caused by cyber threats, the central bank said.

India's banking system and non-banking financial companies (NBFCs) remain sound and resilient, supported by high capital ratios, strengthening asset quality and robust profit growth, the RBI said.

“Looking ahead, given the increasing interconnectivity between banks and NBFCs, the latter should focus on diversifying their sources of funding and reducing over-reliance on bank funding. “Both banks and non-banks need to bring more empathy into their customer services,” the regulator says.

Overall, banks and NBFCs need to further strengthen their balance sheets through robust governance and risk management practices to meet the growing demands of the Indian economy, it said.

The consolidated balance sheet of scheduled commercial banks (SCBs) grew by 12.2% in 2022-23, driven by loans to the retail and services sectors; Deposit growth also increased, although it lagged behind loan growth. Higher net interest income and lower provisions boosted net interest margin (NIM) and profitability in 2022-23.