Kokan

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AN ANALYTICAL STUDY OF KOKAN MERCANTILE BANK LTD
PROJECT ON
AN ANALYTICAL STUDY OF
KOKAN MERCANTILE BANK LTD
SUBMITTED BY
SAYYED SHIFA ARIF
M.COM PART II SEM 3 2023-24
SEAT NO:-6540740
PROJECT GUIDE
PROF. YUSUF FAROOQUI & PROF. SAMEER NAIK
SUBMITTED TO
UNIVERSITY OF MUMBAI
Anjuman-I-Islam’s
AKBAR PEERBHOY COLLEGE OF COMMERCE

& ECONOMICS
M/S SHAUKAT ALI ROAD,

DO TAAKI,
GRANT ROAD MUMBAI-08
SAYYED SHIFA ARIF ROLL NO:-24 2023-24

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Anjuman-I-Islam’s
AKBAR PEERBHOY COLLEGE OF COMMERCE
& ECONOMICS
M/S SHAUKAT ALI ROAD, DO
TAKI,
CERTIFICATE
MISS. SAYYED SHIFA ARIF of M.COM Part 2 Semester III has

undertaken & completed the project work titled AN ANALYTICAL STUDY
OF KOKAN MERCANTILE BANK LTD, During the academic year 2023-
2024 under the guidance of PROF. YUSUF FAROOQUI & PROF.
SAMEER NAIK submitted to this college in fulfillment of the curriculum of
Masters of Commerce (Advance Accountancy), University of Mumbai.
This is a bonafide project work & the information presented is true and
original to the best of our knowledge and belief.

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Project Course External Principal

Guide Co-Ordinator Examiner
Anjuman-I-Islam’s
AKBAR PEERBHOY COLLEGE OF COMMERCE & ECONOMICS
M/S SHAUKAT ALI ROAD, DO TAAKI,
DECLARATION
I, SAYYED SHIFA ARIF student of Anjuman-I-Islam’s Akbar Peerbhoy College

Of Commerce & Economics ,M.COM (Part-II) Semester III hereby declare that I
have completed the project on AN ANALYTICAL STUDY OF KOKAN
MERCANTILE BANK LTD in academic year 2023-2024.
The information submitted is true and original to the best of my knowledge.
Signature of the Student

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ACKNOWLEDGMENT
To list who all have helped me is difficult because they are so numerous
and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels
And fresh dimensions in the completion of this project .
I take this opportunity to thank the University of Mumbai forgiving me
chance to do this project.
I would like to thank my principal, Prof. (Dr.) Shaukat Ali for providing
the necessary facilities required for completion of this project.
I take this opportunity to thank our Coordinator Dr. Anzar for his moral
support and guidance.
I would also like to express my sincere gratitude towards my project guide
Prof. Yusuf Farooqui & Prof. Sameer Naik whose guidance and care
made the project successful.
I would like to thank my College Library, for having provided various
reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project

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CONTENTS:-
Chapter No. Name of the concept Page No.
I Introduction 6
Objectives Of The Study 7
II Review Of Literature 11-14
III Research Methodology 15-35
IV Types Of banking Frauds 36-42
V Computer Depredations 43-44
VI Effect Of Frauds On Banks 45-46
VII Banks Rules Regarding Banking Fraud And 47

Scam
VIII Role Of Bankers In Bank Fraud 48
IX Regulation Of RBI 49-50
X Internal Factors 51-53
XI External Factors 54-56
XII Triangle Of Fraud 57-58
XIII Fraud Detection In Real Time For Banks 59
XIV Actions Taken By Banks To Minimize The 60-61

Bank Fraud
XV Present New Fraud Prevention Challenges 62-68
XVI Conclusion 69
XVII Bibliography 70
XVIII Questionnaire 71-74

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CHAPTER NO-1
INTRODUCTION TO FRAUD
Fraud can be seen as the intentional misrepresentation, concealment, or omission of the truth
for the purpose of deception or manipulation to the financial detriment of an individual or an
organization (such as a bank) which also includes embezzlement, theft or any attempt to steal
or unlawfully obtain, misuse or harm the asset of a bank. Fraud and its management have been
the main factor. In the distress of banks, and as much as various measures have been taken to
minimize the incidence of fraud, it still rises by the day because fraudsters always device
strategic ways of committing fraud. This has become a point of great attention in the rural
banking sector as well as every organization in Ghana. Although this phenomenon is not unique
to the rural banking industry or peculiar to Ghana alone, the high incidence of fraud within the
banking industry has become a problem to which solution must be provided in view of the large
sums of money involved and its adverse implications on the economy. Fraud in its effects
reduces the assets and increases the liability of any company. In the case of rural banks, this
may result in the loss of potential customers or crisis of confidence of banking public and in the
long run end up in another failed bank situation. It is instructive to know that many banking
operatives have different reasons for joining various banks. Many have the intention of working
for a short time in the banking industry (get whatever they could and find another job that is
less demanding), some are in the industry because of their love for banking and all it stands for,
while majority are there to enrich themselves by fraudulent means.
Due to the upsurge of great viability in the rural banking sector, its dynamic and fast expanding
level of activities, rural banks are faced with different kinds of challenges, among which is
trying to prevent various fraudulent intentions of both staff and customers As it were frauds
seem to have increased as new technology is born and more advanced techniques of enhancing
business transactions have been developed. Fraudsters are constantly devising new Plans,
updating old methods and trying out new techniques of bypassing these electronic systems
meant to ensure high security of banking operations. The introductions of automated systems
that lose handwriting and fingerprint trails have not helped matters either.

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In view of the staggering sums lost to fraudsters by the Ghanaian financial sector, in these recent
times and the rate at which fraudsters appear to have shifted their attention and directed their
energies to banks, devising all unimaginable tactics to exploit loopholes in the control measures
and capitalize on carelessness of the staff and customers, fraud in the industry has prevented
many banks from achieving their goals. Some banks were just seen in the physical as body and
building whilst in reality they were already liquidated and many were already into distress.
Taking a walk down memory lane. The banking sector plays a very significant role in the
development of any economy. Banks in most economies are the principal depositories of the
public’s monetary savings, the nerve centre of the payment system, the vessel endowed with the
ability of money creation and allocation of financial resources and conduit through which
monetary and credit policies are implemented. The success of monetary policy, to a large extent,
depends on the health of the banking institutions through which the policies are implemented.
Whatever problems which militate against the proper functioning of the banking sector will
invariably have multiplier effects on the other sectors of the economy. This is one of the reasons
why it is essential to quickly diagnose any factor which may hamper the smooth functioning of
the rural banking sector and urgently address such issues.
OBJECTIVES OF THE STUDY
• To understand the meaning of banking frauds.
• To understand the various types of banking frauds.
• To ascertain the factors which encourages the fraudulent activities in banks.
• To understand the categories of banking frauds. I.e. Frauds done by insiders and outsiders.
• To determine the effects of banking frauds on the society.
• To suggest the measures and techniques for reducing the incidence of banking frauds.
• To understand the Reserve Bank of India (RBI) rules to prevent banking frauds and scams and
responsibility of bankers in banking frauds and scams.

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DEFINITION OF FRAUD
• “Deceit, trickery, sharp practices or breach of confidence , perpetrated for profit or gain some
unfair or dishonest advantages”.
- Collins english dictionary.
• “Deliberate fraud committed by management that injures investors and creditors through
materially misleading financial statements”.
–Elliot and Willingham,(1980).
• “Fraud is a false representation or concealment of material fact to persuade someone to part
with something valuable”.
-Laurence Sawyer (1988).
• “Fraud” in relation to affairs of a company or anybody corporate to include any act, omission,
concealment of any factor abuse of position committed by any person or any other person with
the connivance in any manner, with intend to deceive, to gain undue advantage from or to
injure the interests of, the company or its shareholders its creditors or any other person, whether
or not there is any wrongful gain or wrongful loss”.
- Section 447 of the Companies Act, 2013.

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MEANING OF BANK FRAUD
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property
owned or held by a financial institution, or to obtain money from depositors by fraudulently sing
as a bank or other financial institution. In many instances, bank fraud is a criminal offence.
While the specific elements of particular banking fraud laws vary between jurisdictions, the term
bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or
theft. For this reason, bank fraud is sometimes considered a white-collar crime. Banking frauds
constitute a considerable percentage of white-collar offences being probed by the police. Unlike
ordinary thefts and robberies, the amount misappropriated in these crimes runs into lakhs and
crores of rupees.
Bank fraud is a federal crime in many countries, defined as planning to obtain property or
money from any federally insured financial institution. it is sometimes considered a white collar
crime. The number of bank frauds in India is substantial. it in increasing with the passage of
time. All the major operational areas in banking represent a good opportunity for fraudsters with
growing incidence being reported under deposit, loan and inter-branch accounting transactions,
including remittances. Bank fraud is a big business in today’s world. with more educational
qualifications, banking becoming impersonal and increase in banking sector have gave rise to
this white collar crime. in a survey made till 1997 bank frauds in nationalized banks was of
rs.497.60 crores. The occurrence of frauds in the banks is not a recent observable fact; in fact the
misdemeanour of forgery is perhaps as old as writing itself. Of the inestimable types of financial
offences that our nation and all countries across the globe have had to eyewitness and undergo
from, a major one is financial frauds caused in the banks popularly know as “bank frauds”.
Any organization which deals with money is always vulnerable to frauds and this is more so in
the case of financial institutions like banks which are dealing only in money and that to as a
business commodity. Bank frauds are on the augment. The graph of fraud money is mounting
steeply.
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The reasons for increase in number of frauds in the post nationalization period is attributed to a
numerous reasons, the most likely ones are the widespread branch network, lack of trained staff
for the expanding network and a shift from the security oriented lending to the development
oriented approach i.e. advances to the priority sectors.
Frauds in Indian banks only prove that financial liberalization aggravates the inherent tendency
of shallow markets to foster excessive speculation and worsens the systemic consequences of
such speculative activity. Revelations of fraud, evidence of insider trading and a consequent
collapse of investor interest have led to an almost unstoppable downturn in Indian banks. Bank
frauds concern all citizens. It has become a big business today. Bank frauds are the creation of
professional criminals, desperate customers or of errant bankers or their collusion inter se.
However the prima donna in the drama is the insider or the banker. He opens the purse. He is
often the target and at times the tool. Occasionally, he is the victim of the temptations. Other
contributory factors are incompetence, lethargy, negligence, connivance and ignorance.
Situational pressures and permissive attitudes of the society promote them. High gains and low
stakes encourage the incidence. The rising trend makes it more and more important that ways
and means are found to combat the menace.

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CHAPTER NO-2
REVIEW OF LITERATURE
In legal terms, fraud is seen as the act of depriving a person underhandedly of something, which such a
person would or might be entitled to, but for the perpetration of fraud. In its lexical meaning, fraud is
an act of trickery which is intentionally practiced in order to gain illegitimate advantage. Therefore, for
any action to constitute a fraud there must be deceitful objective to benefit (on the part of the
perpetrator) at the disadvantage of another person or group. Fraud typically requires stealing and
manipulation of accounts, frequently accompanied by cover up of the theft. It also involves the
translation of the stolen resources or property into own resources or property. Young, (2002) says that,
ample evidence exists that individual integrity of those running the banks today has never been at a
higher level. Never before have we seen attention to the actual steps; procedures and control of
monetary transactions. Employees’ as well as firms in all industries engage in fraudulent practices all
over the world. Although the existence of fraud in our banks is not an uncommon or unexpected
behavior, its prevalence is what is worrying because of all the various problems confronting the most
untraceable and Kindle. Frauds in banks lead to loss of monies that ordinarily belong to someone other
than the banks. The loss results in some cases, in reducing the level of resources available for use in the
operations of the banks.
In very bad cases where frauds occur with crippling frequency and in wholesomeness, the bank may be
forced to close down as a result. When the bank loses money and is wound up, the customers lose
money. This leads to loss of confidence and eventually reduced patronage. Another reason for worrying
in the banking industry is the vast variety of nature, character and methodology employed in fraud.
Moreover, the control of identified specie seems to give birth to another that is invariably more
sophisticated and complex. Thus each case can be said to be a variant of another and undoubtedly an
instructive study in human negative use of ingenuity and endowment.
In this chapter a review of relevant literature, particularly that relating to performance analysis of banks
in India, risk management in banks and allied areas is attempted. This is followed by research gap,
what remains to be done to bridge the gap between the available literature and what is really required at
present to address the relevant research problem.

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2.1. Major Studies on Banking in India and Their Findings:
an Overview Aggarwal, (1979)1, has conducted a study on nationalised banks with special reference to
their social obligations. The main recommendations of the study were:
(i) Providing more branch office to the public particularly in the semi-urban and rural areas and in the
lead districts,
(ii) Providing greater credit facilities to the public as well as to thepriority and neglected sectors,
(iii) Helping generation and maintenance of employment opportunities inthe country,
(iv) Financing the government securities and
(v) Popularizing the bill form of credit. Amandeep, (1983)2, studiesvarious factors which effect the
profitability of commercial banks with the help of multiple regression analysis. She has tried to
determine the share of each factor which determines the profitability of commercial banks. The trend
analysis, ratio analysis, multiple regression analysis was effectively used to know the profitability of
commercial banks.
1. Aggarwal Aggarwal, H.N. (1979), A Portrait of Nationalised Banks: A Study with Reference to Their
Social Obligations, Inter-India Publications, New Delhi.
2. Amandeep, (1983), Profits and Profitability in Commercial Banks, Deep and Deep Publications Pvt.
Ltd., Rajouri Gardens, New Delhi – 110027.
3. Review of Literature 16 Technology in Banks and Its Impact on Operational Efficiency and Risk
Management Angadi and Devraj, (1983)3, have studies the factors determining the profitability and
productivity of public sector banks (PSBs) in India. The study has been primarily based on published
financial statements of respective banks. These authors have observed that though PSBs have
discharged their social responsibilities, their deficiencies in respect of effective mobilization of funds
at lower costs, attracting retail banking business, augmenting earnings from other sources, effective
cash and portfolio management etc. have contributed towards the lower productivity and profitability
of these banks.

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4. Arora, S. and Kaur, S (2008) have studied the internal determinants of diversification moves by
banks taking two dependent variables, (i) net interest margin, and (ii) non-interest margin. It has been
observed that all the four explanatory variables viz. (i) risk, (ii) technological change, (iii) cost of
production, and (iv) regulatory cost have got significant influence on the variations in the structure of
income of the banks. It has also been observed that the variations in income in respect of foreign banks
in the highest followed by nationalized banks and other banks.
5. Avasthi, and Sharma, (2000), have observed that advances in information technology are set to
change the face of the banking business. The authors have also explored the emerging challenges faced
by the banking industry from a regulatory perspective. Technology has increased manifold the delivery
channels used by banks in retail banking and has made banking much more customer friendly. It has
also greatly expanded the market for banking products, and has also enabled banking in hitherto
uncovered areas at lower operating costs.
6. Adhivarahan, (2001), in his research article has attempted to study the provisions of ‘Information
Technology Act 2000 and its implications on the functioning of banks. The study has pointed out that
the number of incidents of e-fraud and on-line breaches is the highest in India. As such, instances of
cybercrimes in banking sector have to be treated with utmost care. For this purpose, it has been
suggested that a statutory body similar to ‘Internet Fraud Centre’ in the United States has to be formed
in India.
7. Birla Institute of Scientific Research (1981), has conducted a study to evaluate the performance of
nationalized banks in comparison with that of banks in private sector. The emphasis has been on the
objectives of nationalization and their achievements, relative performance of private sector banks and
nationalized banks since 1969 and the effect of nationalization on rest of the banking sector. The study
has revealed that the growth and development in banking after nationalization has been not just
because of transfer of ownership. Rather, it has been because of various incentives and punitive
measures that were implemented with more vigilance and care after 1969 by the Government and the
RBI to make banks fulfill their social responsibilities.

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Similarly in the same spheres even better results have been achieved by non-nationalized banks. The
performance of private sector banks in the post nationalization era has been noteworthy, especially
because of the odds that they faced in securing the growth of the business. The achievement of
significantly high growth in deposits, advances, and branches etc. has clearly shown the high quality of
entrepreneurship and management of these banks.
8. Benton, (1990) has observed that with the advent of information technology, there has been positive
impact on the productivity, profitability and efficiency of banks. But instances of bank frauds are also
on the rise. These are in fact hidden threats to the effective functioning of financial institutions. The
author has analysed the mechanism in which bank frauds are taking place and also has suggested how
to tackle them. Dealing with frauds would have an impact on banking productivity as additional
resources need to invested in online transaction for detection of frauds, like, scrutinizing orders,
tracking bad transactions, negotiating in case of trouble with the banking transactions etc.
9. Brett, (1997) has studied the rapid transformation of changing old money structures into E-Money
platforms. It has been pointed that banks are providing their customers with different types of cards.
As such, this E-Money channel can be used at any time to pay for goods and services. The coins and
bank notes are replaced by digitally signed files. The advantage of the above fast emerging system is
that the cost of passing on the money is nearly zero. The author has further pointed out the need to be
aware of the financial management to make more effective financial transactions through the electronic
media.

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CHAPTER 3
RESEARCH METHODOLOGY
Introduction In this chapter, the research methodology used in this study is described and the
research propositions relating to the objectives of the study are stated. Methods available for
collecting data and the characteristics of the sample group are set out in this chapter. Also, it forms
the core of the research and elaborates on the research design, sampling plan, data collection
techniques and statistical tools applied.
Research Design:
Research design is a systematic way of collecting information which can be statistically analyzed to
find a solution to a problem statement. Kerlinger (1973) states research as: the systematic,
controlled, empirical and critical investigation of hypothetical propositions about the presumed
relations among natural phenomena. Leedy & Ormrod, (2005) defined research from a more
utilitarian point of view: It is a procedure by which we attempt to find systematically, and with the
support of demonstrable fact, the answer to a question or the resolution to a problem. In the present
study, the researcher has adopted exploratory research method to identify the problem statement
after reviewing the literature on CG, cases of corporate frauds reported and published in the banking
sector, a discussion with the subject matter experts, CG guidelines recommended by SEBI and RBI,
reviewing the report on CG from the annual reports of public and private sector banks. In addition
to this the researcher has reviewed newspaper articles and peer reviewed journals to gather in-depth
insight about the subject matter as a result the scope of conducting research in this framework has
emerged. Literature review highlighted the innumerable challenges of enabling good CG practices
in the Indian banking sector. While conducting a literature review statistical figures from referred
journals and other secondary sources were duly considered by the researcher. Due care was taken to

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acknowledge the original authors, books, report 80 and websites. Research design adopted for the
study has been both quantitative and qualitative in nature. The study was depended on primary as
well as secondary data.
Type and Nature of Study:

Conclusive research is carried out to test and validate the formulated hypotheses and specified
relationship. The present study was conducted to test and find out the relationship between CG
parameters and corporate frauds. It was also quantitative in nature, as numerical data was collected
and analyzed using statistical tools. Conclusive research is more likely to use statistical tests,
advanced analytical techniques, and larger sample sizes, compared with exploratory studies.
Conclusive research is more likely to use quantitative, rather than qualitative techniques”
(Nargundkar, 2008, p.39). Malhotra and Birks (2000, p.76) divided conclusive research design
into further two categories: descriptive research (used to describe some functions or
characteristics) and causal research (used to research cause and effect relationships). The present
study is also qualitative in nature, wherein CG disclosure index percentage of public and private
sector banks were studied with the help of the report on CG stated in their annual reports. The
content analysis method w 81 fraudulent activities, and the corrective measures needed. The
survey questionnaire was published as an e-survey in Jan 2010 and was circulated to more than
1000 leading organizations in India. The survey respondents include chairman/MD, CFO and
Heads of Internal audit and compliance, fraud risk managers and other senior management
personnel across various industry segments. More than 75% of the respondents in the survey
believed that fraud in corporate India is on rise and 81% stakeholders in India continue to perceive
financial statement fraud as a major area of concern and other reasons are ineffective whistle
blowing systems and weak regulatory environment are prevailing in India.
A study conducted by Ernest & Young (2012) on the fraud status and CG in India in its report
revealed about the robust steps taken by Indian government to increase the confidence of
investors, corporates and public. In the recently concluded parliamentary sessions, two important
bills were introduced — the Prevention of bribery of Foreign Public Officials Bill and The Anti-
Corruption, Grievance Redressal, and whistle blower Protection Bill. In an another significant
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development, the government is working on the Lokpal Bill, which aims to create stricter
regulations and has given more credibility to its fight against bribery and corruption.
This study aims to understand how businesses have coped with increasing fraud and corruption
risk last year, what the emerging fraud risks in the industry. Deloitte (2012), Indian Banking Fraud
Survey, in its report stated that Indian banking sector is growing at a rapid pace and with the
government giving green signal for the new banking licenses, the environment will become more
difficult and challenging. The survey conducted by Deloitte has revealed that, ‘banks have
witnessed high number of fraud cases in the last one year and the numbers will rise in coming
future’. The survey of the respondents show that 37% believe that lack of oversight by the line
managers to the deviation in existing processes in the major reason of fraud. Also, that majority of
the frauds are incidents were detected through a formal and informal complaint mechanism. The
report shows the upcoming challenging for the banking and how to deal with it in future. 82
Global Fraud Report (2012), Kroll Advisory Solutions in its report showcased the global fraud
scenario by conducting survey of more than 830 senior executives and worldwide.
Primary Data: - Primary data was collected from the city of Mumbai. The questionnaires were
responded by the bank employees and the stakeholders associated with public and private sector
banks.
Secondary Data: - The secondary data was collected from the website of public and private sector
banks wherein the report on CG was studied from the annual reports of the selected banks for the
financial year 2011-12, 2012-13, 2013-14. The data related to history, growth and development of
Indian banking sector and selected banks were collected mainly from the books, magazines
relating to the banking sector, published paper by RBI, reports, articles, news papers, speeches and
other journals like monthly review of Economy and RBI & NFCG websites.

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FRAUDS DONE BY INSIDERS
1. Rogue Trading:
A rogue trader is a highly placed insider nominally authorized to invest sizeable funds on behalf of
the bank; this trader secretly makes progressively more aggressive and risky investments using the
bank's money, when one investment goes bad, the rogue trader engages in further market
speculation in the hope of a quick profit which would hide or cover the loss. Unfortunately, when
one investment loss is piled onto another, the costs to the bank can reach into the hundreds of
millions of rupees; there have even been cases in which a bank goes out of business due to market
investment losses.

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2. Fraudulent loans:

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One way to remove money from a bank is to take out a loan, a practice bankers would be more
than willing to encourage if they know that the money will be repaid in full with interest. A
fraudulent loan, however, is one in which the borrower is a business entity controlled by a
dishonest bank officer or an accomplice; the "borrower" then declares bankruptcy or vanishes and
the money is gone. The borrower may even be a non-existent entity and the loan merely an artifice
to conceal a theft of a large sum of money from the bank.
3. Wire fraud:

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Wire transfer networks such as the international, interbank fund transfer system are tempting as
targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used
by banks to settle accounts with each other, rapid or overnight wire transfer of large amounts of
money are commonplace; while banks have put checks and balances in place, there is the risk that
insiders may attempt to use fraudulent or forged documents which claim to request a bank
depositor's money be wired to another bank, often an offshore account in some distant foreign
country. Wire fraud is defined as attempting to defraud using electronic means, such as a computer
or telephone. What must be proved is that the person knowingly and willfully devised or intended
to devise a scheme to defraud. Since the advent of the internet, there are literally thousands of
crimes that fall under the definition of wire fraud. Here we’re going to take a look at some of the
more common forms of wire fraud, why they occur, and how you can protect yourself.
While security measures have certainly increased over the years, banks still fall victim to wire
fraud, costing them millions of dollars or more every year. Since banks are constantly wiring
extremely large sums of money back and forth between accounts, it may take them awhile to
notice when a large sum of money goes missing. This type of fraud is usually perpetrated by
insiders who forge documents wire money to foreign accounts. Other common ways this can occur
is via the internet, through fraudulent activity such as stolen identities, stolen credit card numbers,
and hacked internet banking accounts

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Wire fraud on internet
There are many other forms of wire fraud that may occur on the internet. A few common ones are:
• Email Phishing:
The practice of sending out fake emails that look legitimate, in order to steal information such as
passwords, credit card numbers, or personal information.
• Identity Theft:
Usually perpetrated by people who set up legitimate looking websites designed to trick users into
submitting personal information, similar to a loan or insurance application.. Other methods may
include hacking databases containing business information, or accessing a personal hard drive
illegally to steal personal information.

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• Fraudulent Business Sales:
This is a common scam targeting webmasters and potential investors. When valuing an internet
business, revenue, traffic, and the future potential value of the website are used to estimate the
value. By faking revenue and traffic proof, a con artist can inflate perceived value of the website,
sometimes scamming victims out of thousands of dollars. Wire Fraud On The Phone Wire fraud
commonly occurs over the telephone as well. A con artist will call your house, and try to talk you
out of personal information. Common scams involve criminals posing as salesmen, loan officers,
and other business professionals in order to collect personal information such as credit card
numbers or social security numbers.
Measures from protecting the Wire frauds
Wire fraud is a very real threat in the world today. By using a little bit of common sense, you can
avoid becoming a victim yourself. Don’t give out personal information over the telephone to
unsolicited callers without doing an extensive check on their background. Be careful what kind of
websites you use to conduct financial transactions. There are many legitimate websites where
doing credit card transactions, or even loan applications are extremely secure. Be wary of any
unknown websites. Bottom line; don’t give out your personal information to strangers. With just a
little bit of common sense you can avoid becoming a victim of wire fraud yourself.

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4. Demand draft fraud:
Fraud is usually done by one or more dishonest bank employees that is the Bunko Banker. They
remove few DD leaves or DD books from stock and write them like a regular DD. Since they are
insiders, they know the coding, punching of a demand draft. These Demand drafts will be issued
payable at distant town/city without debiting an account. Then it will be cashed at the payable
branch. For the paying branch it is just another DD. This kind of fraud will be discovered only
when the head office does the branch-wise reconciliation, which normally will take 6 months. By
that time the money is unrecoverable.

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5. Theft of identity:
Dishonest bank personnel have been known to disclose depositors' personal information for use in
theft of identity frauds. The perpetrators then use the information to obtain identity cards and
credit cards using the victim's name and personal information.

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Impact of Identity Fraud:

The growth in identity fraud victimization rates over the past year is harmful not only because of
the dollar losses caused from identity fraud, but also because of the emotional impact on the
victims. Identity Fraud victimization and the accompanying fear it generates lowers faith in the
safety of the system and causes secondary effects, which are demonstrated by changes of
behaviour, such as avoidance of certain merchants, altered usage of payment types and channels,
and severed relationships with primary card companies and banks. The increased fraud incidence
is being driven by the poor economy coupled with an increasingly global, hierarchal and
sophisticated criminal enterprise that specializes in developing new weapons of attack. Meanwhile
the consumer costs, the dollar amounts the victim pays on average out-of-pocket, reached an all-
time low.
The relation of identity fraud is explained through following the following diagram:

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6. Forged or fraudulent documents:
Forged documents are often used to conceal other thefts; banks tend to count their money
meticulously so every penny must be accounted for. A document claiming that a sum of money
has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can
therefore be valuable to a thief who wishes to conceal the minor detail that the bank's money has
in fact been stolen and is now gone.
7. Uninsured deposits:
There are a number of cases each year where the bank itself turns out to be uninsured or not
licensed to operate at all. The objective is usually to solicit for deposits to this uninsured "bank",
although some may also sell stock representing ownership of the "bank". Sometimes the names
appear very official or very similar to those of legitimate banks. For instance, some banks with no
license and no affiliation to its seemingly apparent namesake; the real Chase Manhattan bank,

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New York. There is a very high risk of fraud when dealing with unknown.

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FRAUDS DONE BY OUTSIDERS
1. Bill discounting fraud:
Essentially a confidence trick, a fraudster uses a company at their disposal to gain confidence with
a bank, by appearing as a genuine, profitable customer. To give the illusion ofs being a desired
customer, the company regularly and repeatedly uses the bank to get payment from one or more of
its customers. These payments are always made, as the customers in question are part of the fraud,
actively paying any and all bills raised by the bank. After certain time, after the bank is happy with
the company, the company requests that the bank settles its balance with the company before
billing the customer. Again, business continues as normal for the fraudulent company, its
fraudulent customers, and the unwitting bank. Only when the outstanding balance between the
bank and the company is sufficiently large, the company takes the payment from the bank, and the
company and its customers disappear, leaving noone to pay the bills issued by the bank.
2. Forgery and altered cheques:
Thieves have altered cheques to change the name (in order to deposit cheques intended for
payment to someone else) or the amount on the face of a cheque (a few strokes of a pen can
change 100.00 into 100,000.00, although such a large figure may raise some eyebrows). Instead of
tampering with a real cheque, some fraudsters will attempt to forge a depositor's signature on a
blank cheque or even print their own cheques drawn on accounts owned by others, non-existent
accounts or even alleged accounts owned by non-existent depositors. The cheque will then be
deposited to another bank and the money withdrawn before the cheque can be returned as invalid
or for non-sufficient funds.

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3. Booster cheques:
A booster cheque is a fraudulent or bad cheque used to make a payment to a credit card account in
order to "bust out" or raise the amount of available credit on otherwise-legitimate credit cards. The
amount of the cheque is credited to the card account by the bank as soon as the payment is made,
even though the cheque has not yet cleared. Before the bad cheque is discovered, the perpetrator
goes on a spending spree or obtains cash advances until the newly-"raised" available limit on the
card is reached. The original cheque then bounces, but by then it is already too late.
4. Stolen cheques:
Some fraudsters obtain access to facilities handling large amounts of cheques, such as a mailroom
or post office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a
social or veterans' benefit office (issuing many cheques). A few cheques go missing; accounts are
then opened under assumed names and the cheques (often tampered or altered in some way)
deposited so that the money can then be withdrawn by thieves. Stolen blank cheque books are also
of value to forgers who then sign as if they were the depositor.
5. Credit card fraud:

Credit card fraud is widespread as a means of stealing from banks, merchants and clients. A credit
card is made of three plastic sheet of polyvinyl chloride. The central sheet of the card is known as
the core stock. These cards are of a particular size and many data are embossed over it. But credit
cards fraud manifest in a number of ways. They are:
„« Genuine cards are manipulated.
„« Genuine cards are altered.
„« Counterfeit cards are created.
„« Fraudulent telemarketing is done with credit cards.
« Genuine cards are obtained on fraudulent applications in the names/addresses of other persons
and used.
It is feared that with the expansion of E-Commerce, M-Commerce and Internet facilities being
available on massive scale the fraudulent fund freaking via credit cards will increase tremendous ly.

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6. Accounting fraud:
In order to hide serious financial problems, some businesses have been known to use fraudulent
bookkeeping to overstate sales and income, inflate the worth of the company's assets or state a
profit when the company is operating at a loss. These tampered records are then used to seek
investment in the company's bond or security issues or to make fraudulent loan applications in
a final attempt to obtain more money to delay the inevitable collapse of an unprofitable or
mismanaged firm.
7. Cheque kiting:
Cheque kiting exploits a system in which, when a cheque is deposited to a bank account, the
money is made available immediately even though it is not removed from the account on which
the cheque is drawn until the cheque actually clears. Deposit 1000 in one bank, write a cheque
on that amount and deposit it to your account in another bank; you now have 2000 until the
cheque clears. In-transit or non-existent cash is briefly recorded in multiple accounts.
A cheque is cashed and, before the bank receives any money by clearing the cheque, the money
is deposited into some other account or withdrawn by writing more cheques. In many cases, the
original deposited cheque turns out to be a forged cheque. Some perpetrators have swapped
checks between various banks on a daily basis, using each to cover the shortfall for a previous
cheque. What they were actually doing was check kiting; like a kite in the wind, it flies briefly
but eventually has to come back down to the ground.
8. Stolen payment cards:

Often, the first indication that a victim's wallet has been stolen is a 'phone call from a credit
card issuer asking if the person has gone on a spending spree; the simplest form of this theft
involves stealing the card itself and charging a number of high-ticket items to it in the first few
minutes or hours before it is reported as stolen. A variant of this is to copy just the credit card
numbers (instead of drawing attention by stealing the card itself) in order to use the numbers in
online frauds.

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9. Duplication or skimming of card information:
This takes a number of forms, ranging from a dishonest merchant copying clients' credit card
numbers for later misuse (or a thief using carbon copies from old mechanical card imprint
machines to steal the info) to the use of tampered credit or debit card readers to copy the
magnetic stripe from a payment card while a hidden camera captures the numbers on the face
of the card. Some thieves have surreptitiously added equipment to publicly accessible
automatic teller machines; a fraudulent card stripe reader would capture the contents of the
magnetic stripe while a hidden camera would sneak a peek at the user's PIN. The fraudulent
equipment would then be removed and the data used to produce duplicate cards that could then
be used to make ATM withdrawals from the victims' accounts.
10. Impersonation and theft of identity:

Theft of identity has become an increasing problem; the scam operates by obtaining information
about a victim, then using the information to apply for identity cards, accounts and credit in that
person's name. Often little more than name, parents' name, date and place of birth are sufficient
to obtain a birth certificate; each document obtained then is used as identification in order to
obtain more identity documents. Government issued standard identification numbers such as
"Social security numbers, PAN numbers" are also valuable to the identity thief. Unfortunately for
the banks, identity thieves have been known to take out loans and disappear with the cash, quite
content to see the wrong persons blamed when the debts go bad.
11. Fraudulent loan applications:

These take a number of forms varying from individuals using false information to hide a credit
history filled with financial problems and unpaid loans to corporations using accounting fraud to
overstate profits in order to make a risky loan appear to be a sound investment for the bank.
Some corporations have engaged in over-expansion, using borrowed money to finance costly
mergers and acquisitions and overstating assets, sales or income to appear solvent even after
becoming seriously financially overextended. The resulting debt load has ruined entire large
companies, such as Italian dairy conglomerate Parma at, leaving banks exposed to massive losses
from bad loans.

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12. Phishing and Internet fraud:

Phishing operates by sending forged e-mail, impersonating an online bank, auction or payment
site; the e-mail directs the user to a forged web site which is designed to look like the login to
the legitimate site but which claims that the user must update personal info. The information
thus stolen is then used in other frauds, such as theft of identity or online auction fraud. A
number of malicious "Trojan horse" programmers have also been used to snoop on Internet
users while online, capturing keystrokes or confidential data in order to send it to outside sites.
13. Money laundering:

The term "money laundering" dates back to the days of Al Capone
Money laundering has since been used to describe any scheme by which the true origin of funds
is hidden or concealed. The operations work in various forms. One variant involved buying
securities (stocks and bonds) for cash; the securities were then placed for safe deposit in one
bank and a claim on those assets used as collateral for a loan at another bank. The borrower
would then default on the loan. The securities, however, would still be worth their full amount.
The transaction served only to disguise the original source of the funds.
14. Forged currency notes

Paper currency is the usual mode of exchange of money at the personal level, though in business,
cheques and drafts are also used considerably. Bank note has been defined in Section 489A.If
forgery of currency notes could be done successfully then it could on one hand made the forger
millionaire and the other hand destroy the economy of the nation. A currency note is made out of
a special paper with a coating of plastic laminated on both sides of each note to protect the ink
and the antiforgery device from damage. More over these notes have security threads, water
marks. But these things are not known to the majority of the population. Forged currency notes
are in full circulation and its very difficult to catch hold of such forgers as once such notes are
circulated its very difficult to track its origin. But the latest fraud which is considered as the
safest method of crime without making physical injury is the Computer Frauds in Banks.

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Computerization of banks had started since 1994 in India and till 2000 4000 banks were
completely and 9000 branches have been partially computerized. About 1000 branches had the
facilities for International bank Transaction. Reserve Bank of India has evolved working pattern
for Local area Network and wide area Network by instituting different microwave stations so
that money transactions could be carried out quickly and safely.
The main banking tasks which computers perform are maintaining debitcredit records of
accounts, operating automated teller machines, and carry out electronic fund transfer, print out
statements of accounts create periodic balance sheets etc. Internet facilities of computer have
revolutionized international banking for fund transfer and for exchanging data of interest relating
to banking and to carry out other banking functions and provides certain security to the
customers by assigning different pin numbers and password

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15. Advance Fee Fraud

This may involve an agent approaching a bank, a company or individual with another to access
large funds at below market interest rates often for long term. This purported source of funds is
not specifically identified as the only way to have access to it through the agent who must receive
a commission “in advance”. As soon as the agent collects the especially distressed banks and
banks needing large funds to bid for foreign exchange can easily fall victim of this type of fraud.
When the deal fails and the fees paid in advance are lost, these victims are not likely to report the
losses to the police or to the authorities.
16. Fund Diversion

In this case, bank staff sometimes diverts customers’ deposits and loan repayment for personal
use. Another case of this is the tapping of funds from interest in suspense accounts in banks.
17. Account Opening Fraud

This involves the deposit and subsequent cashing of fraudulent cheques. It usually starts when a
person not known to the bank asks to open a transaction account such as current and savings
account with false identification but unknown to the bank.
18. Counterfeit Securities

Counterfeiting of commercial financial instruments is one of the oldest forms of crime. Modern
photographic and printing equipment has greatly aided criminals in reproducing good quality forged
instruments. The documents may be total counterfeit or may be genuine documents that are copied,
forged or altered as to amount, payout date, pay or terms of payment. A common fraud is to present the
counterfeit stocks or bonds as collateral for loan. The presenter would draw out the proceeds and
disappear before the financial instruments are found to be counterfeit.
19. Money Transfer Fraud

Money transfer services are means of moving to or from a bank to beneficiary account at any bank
point worldwide in accordance with the instructions from the banks’ customers. Some common
means of money transfer are mail, telephone, over-the-counter, electronic process and telex.
Fraudulent money transfer may result from a request created solely for the purpose of committing
a fraud or altered by changing the beneficiary’s name or account number or changing the amount
of the transfer.

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20. Letter of Credit Fraud

This generally arises out of international trade and commerce. They stimulate trade across national
borders providing a vehicle for ensuring prompt payment by financially sound institutions.
Overseas suppliers continue to receive spurious letters of credit, which are usually accompanied
by spurious bank drafts with fake endorsements which guarantee payments.
21. Computer Fraud

Computer Frauds involves the deceptive manipulation of the banks’ computer, either at the data
collection stage, the input processing stage or even the data dissemination stage. Computer frauds
could also occur due to improper input system, virus, program manipulations, transaction
manipulations and cyber thefts. It can also take the form of corruption of the programmed or
application packages and even breaking into the system through remote sensors. A banks’ data can
also be tampered with at the data centre to gain access to unauthorized areas or even give credit to
accounts for which the funds were not originally intended. This kind of fraud can remain
undetected for a long time. In this epoch of enormous deployment of automated teller machines
(ATMs) and online real time e-banking and commerce; computer frauds arising from cyber thefts
and crimes has assumed a very threatening dimension . No bank seems to be invulnerable to it,
and a considerable percentage of the enormous amount of money spent annually in the banking
sector to help reduce fraud usually are channelled towards fighting computer frauds and
cybercrimes and theft.
22. Clearing Fraud

Most clearing frauds hinge on suppression of an instrument so that at the expiration of the clearing
period application to the instrument, the collecting bank will give value as though the paying bank
had confirmed the instrument good for payment. Clearing cheques can also be substituted to
enable the fraudster divert the fund to a wrong beneficiary. Misrouting of clearing cheques can
also assist fraudsters to complete a clearing fraud. Askew, a local clearing item can be routed to an
up country branch; the delay entailed will give the collecting bank the impression that the paying
bank had paid the instrument.

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23. Unofficial Borrowing

This occurs when bank employees borrow from the vaults and teller tills off the record. Such
unauthorized borrowings are done in exchange of the staff post-dated cheque or nothing. These
borrowings are more rampant on weekends and during the end of the month when salaries have
not been paid. Some of the unauthorized borrowings from the vault, which could run into
thousands of cedes, are used for fast businesses lasting a few hours or days after which the
resources are replaced without any substantiation in place that they were
Taken in the first place. Such a practice when done recurrently and with no official records, soon
very easily becomes prone to manipulations, whereby they resort to other means of balancing the
cash in the bank’s vault without ever having to replace the sums of money collected.
24. Voucher Manipulation

Manipulation of Vouchers involves the replacement or alteration of entries of one account to
another account being used to commit the fraud. This account would obviously be a fabricated
account into which the funds of unsuspecting clients of the banks are transferred. The amounts
taken are usually in small amounts so that it will not easily be noticed by top management or other
unsuspicious staff of the bank. Manipulation of vouchers can thrive in a banking system saddled
with inadequate checks and balances such as poor job segregation and lack of detailed daily
examination of vouchers and all bank records.

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CHAPTER NO-4
TYPES OF BANKING FRAUDS
As a customer you may be seen as a potential target for fraudulent activities. However by arming
yourself with information and tools you can protect yourself from becoming a victim of fraud. Do
you know the four biggest fraud threats you face Credit card and debit card fraud is a crime
whereby your credit or debit card can be reproduced in order to use the credit balance to obtain a
financial advantage. The creation and/or alteration of a credit/debit card occurs when the
information contained on the magnetic strip is reproduced. This type of me is known as
‘skimming’. Credit or debit card fraud can also occur when your card is lost or stolen and used by
a third party to purchase goods with those cards or to remove cash from the cards. Credit or debit
cards can also be intercepted in transit while being sent to you. Your cards can also be
compromised by a dishonest merchant who undertakes unauthorized duplicate transactions on
your card.
1. Protect your credit / debit card:

Memories your personal identification number (PIN). Don't use the same PIN for all your cards,
and don't choose your birth date or other easily identifiable numbers that might be on something
else in your wallet. Check statements and call your credit card issuer immediately if you see
anything suspicious on your bill. You could help the company uncover fraud—and save yourself
from paying unauthorized charges. Do not let your credit card out of your sight at any time for
example, at a restaurant go with the card. Card fraud is not applicable in Australia only be just as
vigilant when travelling overseas, credit card skimming is an international crime. Always sign
your card in ink as soon as you receive it. Keep track of when new and reissued cards should
arrive, and call the credit card issuer if they don't come on time.
2. Cheque Fraud:
Cheque fraud is the use of a cheque to get financial advantage by: altering the cheque
(payee/amount) without authority theft of legitimate cheques and then altering them duplication or
counterfeiting of cheques using false invoices to get legitimate cheques depositing a cheque into a
third party account without authority depositing a cheque for payment knowing that insufficient
funds are in the account to cover the deposited cheque

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3. ATM FRAUD
Has your ATM got the ‘Jitters’? More and ATMs now have in-built skimming prevention
software. You may have noticed that your card enters and exits the card reader slowly, or jumps
like it has the 'jitters'. That's a sign that the ATM is helping to protect you against card skimming.
Card skimming:
Card skimming is the illegal copying of a card's magnetic strip that can later be used to access
your account and make unauthorized purchases using those details. In the case of ATMs, this
typically occurs when the would-be thief places a device over the card entry point that scans the
cards as they enter and exit the ATM, combined with a hidden camera to record you while you
enter your PIN. The scanning device and camera can be cleverly disguised so that you don't even
notice the ATM has been modified.
What we are doing

To help prevent card skimming, more ANZ ATMs have been fitted with skimming prevention
software that 'shakes' the card as it enters and exits the ATM. The shaking interrupts the scanning
process and renders any skimming attempt ineffective All ANZ ATMs across Australia have
skimming prevention software. You will notice on our newer ATMs there is either a green or blue
plastic cover where you insert your card. This device is installed to alter the shape of the card
reader and making it difficult for the would-be thief to install a skimming device on the ATM.
ANZ are constantly looking at new technology for ensuring that customer information and cash
are secure at all times. Along with the skimming prevention software, ANZ ATMs include the use
of ink staining technology to deter theft.
4. Identity Fraud
Identity fraud can occur in many ways—from somebody using your credit card details illegally to
make purchases to having your entire identity assumed by another person to open bank accounts,
take out loans and conduct illegal business under your name.

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How to protect yourself from identity theft:

• Never send money or give personal details to people you don’t know and trust.
• If you receive a call from your bank or any other organization, don’t provide your personal
details—instead ask for their name and a contact number. Check with the organization in question
before calling back.
• Never rely on a number provided in an email or click on the provided link—instead find the
contact number through an internet search or check the back of your ATM card.
• Regularly check your credit card and/or bank statements to ensure that suspicious transactions
are detected.
• Shred all documents containing personal information, such as credit card applications and bank
statements.
• Log directly onto websites you are interested in rather than clicking on links provided in an
email.
• Always get independent advice if you are unsure whether an offer or request is genuine.
• Lock your letterbox securely to avoid your mail being stolen.
• Ensure you choose passwords that are not easy for someone to guess, such as your date of birth,
pet’s name etc.
Signs of identity fraud

These can vary, but some typical signs that your identity is being used unlawfully are:
• A financial institution informs you they have received an application for credit that you have not
applied for.
• You receive phone calls or letters advising that you have been denied credit that you have not
applied for.
• You receive bank, mobile phone or credit card statements or notices in your name, of which you
have no knowledge.
• You notice that you no longer receive your bank or credit card statement or you notice that not all
your mail is being delivered.

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What can you?
You should also advise any other financial institution that you bank with so they are aware of the
situation. Any instance of identity fraud should also be immediately reported to your local police.
It is also a good idea to advise close family and friends as identity theft rings will often target
more than one member of a household. In addition, consider contacting Veda
Advantage, a credit agency, to obtain your credit history report so that you are kept fully informed
of any unauthorized activity on your own file.
5. Deposit Account Frauds:

Accounts opened without introduction or with improper introduction, frauds under this head are
generally attempted t the time of opening of new branch when such emphasis is not paid on
abstention of introduction. Once the account is opened, the miscreant deposits, stolen/materially
altered cheques for collection/payment etchant dormant account is fraudulently operated by a
forger on forged signatures.
Specimen signature card or signatures on letters are utilized as models:
1. Joint accounts are operated by one of the signatories (forger) by forging the signatures of others.
2. Mini deposit collections are not deposited by the collecting banker.
3. The banker becomes joint account holder and withdraws the money.
4. The banker manipulates the depositor’ Pass Book.
6. Purchased Bill Frauds:
The frauds in this area are often costly. They can take the following forms:
1. Bogus or stolen railway receipts and motor transport receipts accompanied by counterfeit bills
are discounted.
2. Fake bills with inflated value, drawn on sister concerns, for discounts.
3. Genuine bills and railway are presented and got discounted from the bank but the material is
got released from the railways on indemnity bond.
4. Bogus bills for worthless goods are discounted on the strength of dispatch papers

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7. Hypothecation Frauds:
Cash advances, against pledged goods, as security are fertile fields for frauds.
1. Stocks or part thereof, are removed unauthorized from the god owns.
2. Advance against pledge/hypothecation of securities, pledging inferior quality of goods,
overvaluation of stocks.
8. Loan Fraud:
The general policy of the government is to encourage loans to agriculturists or to small artisans
and businessmen. In fact, certain targets for these purposes are fixed for the banks. In the initial
stages, it resulted in losses to the banks due to lack of expertise in the field. The following types of
fraud were perpetrated.
1. Loans are taken by different persons on the same time.
2. Nomadic artisans obtain loans and vanish from the scene.
3. False firms appear everywhere and obtain loans.
4. Loans taken for agricultural development were later used as marriage celebrations.
5. In connivance with the suppliers, farm machinery bills were inflated for accessories which we
never supplied and included in the bills.
6. Farm machinery purchased with loans and hypothecated to banks is sold without informing the
banks or returning the loans.
9. Fictitious entries made in book/ manipulation of record:
These frauds normally take place with the active involvement of staff or where the books are
exposed to the members of public. In such cases, subsequently the record is destroyed.

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I. Cash shortages:
Cash the most sensitive asset of the bank is prone to fraud. The shortages of fraud there is
generally due to carelessness/negligence of the concerned staff who are the joint custodians of
cash.
I. Frauds in Borrower Accounts:
1. Advance against clean/documentary bills purchased/discounted. The borrower committed

frauds by tendering fake bills/accommodation bills/cheques for discounting. Later when the
bills/cheques are received unpaid, the banks find it difficult to recover the amount.
2. Advance under some priority sector schemes.

3. Advance granted in haste or at the behest of top management or any pressure or some
consideration.
4. Incomplete credit information.
5. Lack of post disbursement supervision.
6. Miss-use of discretionary powers or exceeding discretionary powers by Managers/Officers.
II. Frauds in Investment Portfolios:
Investment portfolio which constitutes a big chunk of the total assets of a bank is another fraud
prone area. The dealer in securities in the absence of proper policy, direction and adequate system
of checks and balances may misuse the position for his personal gains the detriment of Banka€™s
interest by putting through deals for passing on business to the brokers which are otherwise not
warranted by business considerations.
III. Frauds in Foreign Exchange Areas:

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1. Frauds in this area are perpetrated in the dealing room operations, documentary credits, export-
import transactions, packing credit etc.
2. Some of the dealers have been put through fictitious deals with the help of brokers due to lack
of back-up functions.
IV. Frauds in computerized environment:

Hardware errors disable the working of any of the component of hardware with a view to
creating/temporary/permanent malfunction to either destroy the data or present its disclosure for
security. Pregame errors are created by miscreants to cripple the system or to siphoned off the
funds to unauthorized accounts or to prevent/reduce charges to select accounts. Data entry errors
are created by staff to give undue gain to interested accounts. Errors are made to give a wrong
picture of sanative data such as balances, classification of advances, outstanding dues, interest rate
applied etc.
VI. Frauds in inter branch and inter bank accounts:
1. Debiting bank accounts without remitting cash.
2. Debiting branch adjusting account without remitting cash.
3. Adjusting branch books-clean cash.
4. Fraudulently debiting/crediting Head office account.
5. Debiting/Crediting various deposit accounts without authority.

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CHAPTER NO-5
COMPUTER DEPREDATIONS
Computer depredations have by some been classified as
Computer frauds are those involve embezzlement or defalcations achieved by tampering with
computer data record or programmed, etc. Computer crimes are those committed with a computer
that is where a computer acts as a medium. The difference is however academic only. Bank
computer crimes are committed mainly for money, however other motive are a follow:
• Personal vendetta
• Black mail
• Ego
• Mental aberrations
• Mischief
Bank computer crimes have a typical feature, the evidence relating to crime is intangible. The
evidences can be easily erased, tampered or secreted. More over it is not easily detectable. More
over the evidence connecting the criminal with the crime is often not available. Computer crimes
are different from the usual crimes mainly because of the mode of investigation. There are no
eyewitness, no usual evidentiary clues and no documentary evidences.
1. Hi-tech crime:
The information technology is changing very fast. The normal investigator does not have the
proper background and knowledge .special investigators have to be created to carry out the
investigations. the FBI of USA have a cell, even in latest scenario there has been cells operating in
the Maharashtra police department to counter cyber crimes. C.B.I also have been asked to create
special team for fighting cyber crimes.

46
2. International crime:
A computer crime may be committed in one country and the result can be in another country. there
has been lot of jurisdictional problem an though the Interpol does help but it too has certain
limitations. the different treaties and conventions have created obstructions in relation to tracking
of cyber criminals hiding or operation in other nations.
3. No-scene crime:
The computer satellite computer link can be placed or located anywhere. The usual crime scene is
the cyber space. The terminal may be anywhere and the criminal need not indicate the place. the
only evidence a criminal leaves behind is the loss to the crime.
4. Faceless crime:
The major advantage criminal has in instituting a computer crime is that there is no personal
exposure, no written documents, no signatures, no fingerprints or voice recognition. The criminal
is truly and in strict sense faceless. There are certain spy software’s which is utilized to find out
passwords and other vital entry information to a computer system. The entry is gained through a
spam or bulk mail. The existing enacted laws of India are not at all adequate to counter cyber
crimes. The Indian Penal code, evidence act, and criminal procedure code has no clue about
computers when they were codified. It is highly required to frame and enact laws which would
deal with those subjects which are new to the country specially cyber law; Intellectual property
right etc.
The Reserve Bank of India has come up with different proposals to make the way easier, they have
enacted electronic fund transfer act and regulations, have amended, The Reserve Bank of India
Act, Bankers Book Evidence Act etc., experience of India in relation to information and
technology is limited and is in a very immature state. It is very much imperative that the state
should seek the help of the experienced and developed nations.

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CHAPTER NO-6
EFFECTS OF FRAUDS ON BANKS
1. Loss of Public Confidence in Banks

Fraud is perhaps the most fatal of all the risks confronting banks. The enormity of bank frauds in
Ghana can be inferred from its value, volume and actual loss. A good number of banks’ frauds
never get reported to the appropriate authorities, rather they are suppressed partly because of the
personalities involved or because of concern over the negative image effect that disclosure may
cause if information is leaked to the banking public The banks’ customers may lose confidence in
the bank and this could cause a setback in the growth of the bank in particular.
2. Loss of Money
Fraud leads to loss of money, which belong to either the bank or customers. Such losses may be
absorbed by the profits for the affected trading period and this consequently reduces the amount of
profit, which would have been available for distribution to shareholders. Losses from fraud which
are absorbed to equity capital of the bank impairs the bank’s financial health and constraints its
ability to extend loans and advances for profitable operations. In extreme cases rampant and large
incidents of fraud could lead to a bank’s failure.
3. Increased Operating Cost

Fraud can increase the operating cost of a bank because of the added cost of installing the
necessary machinery for its prevention, detection and protection of assets. Moreover, devoting
valuable time to safeguarding its asset from fraudulent men distracts management. Overall, this
unproductive diversion of resources always reduces outputs and low profits which in turn could
retard the growth of the bank.

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4. Low Asset Quality
It also leads to a diminishing effect on the asset quality of banks. The problem is more dangerous
when compounded by insider loan abuses. Indeed, the first generation of liquidated banks (Co-
operative Bank and Bank for Housing and Construction) by the Bank of Ghana was largely a
consequence of frauds perpetrated through insider loan abuses. If this problem is not adequately
handled, it could lead to distress and bank failure.
5. Reduced the amount of profit

Banking frauds reduce the profit of banks. Because of the frauds there is decrease in the profit of
the banks. If there is no frauds in banks so bank is able to give maximum return on the investment
of the customers. Fraud leads to loss of money, which belong to either the bank or customers, so
there is decrease in the profit margin of the company.
6. Unattended
There are instances of fraud that adversely impact banks on a regular basis and go unnoticed or
unattended. All these cases of fraud result in sizeable monitory losses for the banks once they go
undetected.
7. Creditability
Fraud events raise questions around the credibility of the fraud deterrent processes and the
technological capabilities of the institution.

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CHAPTER NO-7
BANK RULES REGARDING BANKING FRAUDS AND SCAMS
After receiving Xerox papers (which were actually forged by the offenders) of the property, the
bank passed the same on to the legal section. After scrutiny, the legal consultant told the bank that
the Xerox documents were `perfect' and to release loan after execution of sale deed. The bank
rules state that loan applications can be examined "even with Xerox copies of documents. The
alleged greediness of employees to give their salary slips and other documents on payment of
some money made the job of the cheats easier. The police opine that unless bankers evolve a fool
proof system, the offenders continue to take advantage of the lapses.
Though computer based banking crimes are yet limited but it is increasing with a huge pace. Their
investigation is highly intricate and daunting. Prevention is the best alternative. It is comparatively
easier, though even with the best laws, efficient investigation team the successful conclusion of
most cybercrimes will remain a remote possibility .Therefore emphasis is more on prevention. In
bank administration, one feels that not much attention is paid to preventive measures. Bank
managements must direct their orientation towards preventive rather than detective or punitive
measures. Preventive vigilance must be the prime agenda to bring down the occurrence of fraud in
banks.

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CHAPTER NO-8
ROLE OF BANKERS IN A BANK FRAUD
Bank frauds crop up in all spheres of banking dealing, like: Cheque frauds, Deposit account frauds,
Purchased bill frauds, Hypothecation frauds, Loan frauds etc. A dishonest banker can play havoc with the
banks money. The bank has therefore to sentinel itself and its customer against the deceitful employee.
The vicinity of business of the banker is extensive. The following operational avenues have been noticed
time and again. Manipulation of cash by those handling cash, misappropriation of customer deposit
accounts, misappropriation of money in telegraphic transfers, clearing forged cheques and other
instruments, fraudulently while working in clearing departments, creaming of the sundry accounts,
tinkering with the central accounts, accepting counterfeit currency for a consideration, helping the bank
robber, by giving information etc. An analysis of frauds reported by banks to RBI broadly indicated that
frauds perpetrated on banks could be classified into the following categories:-
1· Misappropriation of cash tendered by the banks constituents and misappropriations of cash remittance.
2· Withdrawal from deposit accounts through forged documents/instruments.

3· Fraudulent encashment of negotiable instruments by opening an account in fake/fictitious name.
4· Perpetration of frauds through clearing transactions.
5. Mutualisation/overstepping of lending/discretionary powers, non-observance of prescribed norms/

procedures in credit dispensation etc.
6. Opening/Issue of Letters of Credit, Banks Guarantees Co-acceptance of bills without proper authority
and consideration.

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CHAPTER NO-9
REGULATIONS RESERVE BANK OF INDIA (RBI)

Reserve Bank of India (RBI) rules to prevent Bank frauds
The Reserve Bank of India (RBI) has drawn up new rules for banks aimed at preventing fraud and
irregularities which is given as follows:
The regulator has asked banks to immediately frame staff rotation and mandatory leave policies
for employees in sensitive areas such as treasury and for relationship managers handling high-
value clients.
Staff rotations and leave are international practices that help banks keep track of decisions and
businesses handled by a particular employee.
Reserve Bank of India has introduced the rules following forensic studies at certain banks due to
the “occurrence of large value frauds or sharp increase in number of frauds at such banks”.
In another notification, RBI directed private and foreign banks to appoint chief of internal
vigilance (CIV) officers, with responsibilities similar to those of chief vigilance officers in public
sector banks.
It was observed that the practices vary widely among banks. It has, therefore, been decided to lay
down detailed guidelines for private sector and foreign banks on similar lines so that all issues
arising out of lapses in the functioning of the private sector and foreign banks, especially relating
to corruption, malpractices, frauds, etc.,can be addressed uniformly by the banks for timely and
appropriate action.”
Banks need to implement an internal vigilance system by and submit a compliance report.
RBI’s directive on staff rotation and mandatory leave comes a few months after a multi cores
fraud involving a relationship manager at the
Gorgon branch of Citibank India came to light.
To prevent frauds, banks should have prescribed procedures and criteria to analyze and assess
irregularities, RBI said. Banks should be able to understand the nature of an irregularity or fraud.
For instance, whether it has taken place because of negligence in duty as a result of “collusion” by
employees.

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“Any action taken in collusion to derive undue/unjust benefit or advantage should be termed as
fraud,” RBI said.
It has asked banks to examine the “intent to defraud, irrespective of whether or not actual loss
takes place.
If an irregularity is detected, banks should immediately assess if it was a result of human or
system failure.
This exercise is the first critical step towards corrective action in the sense that it would lead to
expeditious filing of police complaints, blocking/freezing of accounts and salvaging funds from
the blocked/frozen accounts in due course.
Banks asked to frame a “fit and proper” criteria for posting employees in critical positions such as
in dealing rooms and treasury, or as relationship managers for high-value customers and heads of
specialized branches.
RBI has allowed banks a free hand in appointing CIVs, but has fixed the initial tenure at a
maximum of six years.

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CHAPTER NO-10
INTERNAL FACTORS
The institutional factors or causes are those that can be traced to the inhouse environment of an
banks. They are to a great extent factors within the control of the management of the bank. Major
institutional cause’s fraud can be categorized as follows:
1. Poor Management
This comes in a form of inadequate supervision. A junior staff with fraudulent tendencies that is
not adequately supervised would get the impression that the environment is safe for the
perpetration of fraud. Poor management would also manifest in ineffective policies and
procedures, which a fraudulent minded operator in the system will capitalize on. Even where there
are effective policies and procedures in place, fraud could still occur with sometimes deliberate
skipping of these tested policies and procedures.
2. Inexperienced Personnel
Inexperienced personnel are susceptible to committing unintentional fraud by falling for numerous
tricks of fraudsters. Inexperienced personnel are unlikely to notice any fraud attempts and take
necessary precautionary measures to checkmate the fraudster or set the detection process in
motion.
3. Overstretching
Overstretching is another reflection of poor management. This can aid perpetration of fraud to a
large extent. A staff who is overstretched is not likely to perform at optimum level of efficiency.
4. Job Rotation
Ordinarily, the longer a man stays on a job, the more proficient he is likely to be. An operator who
has spent so long on a particular job may be encouraged to think that no one else can uncover his
fraud. The existence of this kind of situation in a bank is clear evidence of poor management and
such situations encourage fraudulent practices.

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5. Poor Book-keeping
Inability to maintain appropriate books of accounts together with failure to reconcile the various
accounts of the bank on daily, weekly or monthly basis more often than not will attract fraud. This
loophole can very easily be exploited by bank staff that is fraudulent. The prevalence of fraud and
forgeries are an indication of weakness in a bank’s internal control systems. Aside the above-
mentioned causes of fraud, the following factors greatly contribute to fraud:
Inadequate compensation, salaries and fringe benefits which are accruable to bank staff.
Refusal to comply with laid-down procedures without any penalty or sanction.
Conspiracy between interacting agents charged with the responsibility
of protecting the assets and other interest of the bank;

Poor working conditions;
Poverty and infidelity of employees.
6. Weak Accounting
The weak accounting is one of the important internal factor which causes to the banking frauds
and scams.
7. Poor Remuneration
Poor salaries and poor conditions of service can also cause and encourage fraud. Employees that
are poorly paid are often tempted to fraudulently convert some of the employers’ monies to their
own use in order to meet their personal and social needs. This temptation is even stronger on bank
employees who on daily basis have to deal with cash and near cash instruments. In our society, it
is argued that greed rather than poor working conditions or poor salaries is what lures most people
into fraudulent acts. This explains why fraud would still exist in the banking sector, which is
reputed to be one of the highest paying sectors. Some people have an insatiable appetite to
accumulate wealth and would therefore steal irrespective of how good their earnings are.

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8. Frustration
Frustration could also lead to fraud. Where a staff feels short-changed in terms of promotion and other
financial rewards, they become frustrated and such frustration could lead to fraud as such employee
would attempt to compensate himself in his own way.
9. Inadequate Training and Re-Training

Lack of adequate training and retraining of human resources both on the practical and theoretical aspects
of banking activities and operations more often than not leads to poor performance. Such inefficient
performance creates a loophole which can very easily be exploited .

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2. EXTERNAL FACTORS
Environmental factors are those that can be traced to the banks immediate and remote
environment. If the whole society of which the bank is a part is morally bankrupt it will be
difficult if not impossible to expect the banks to be insulated from the effects of such moral
bankruptcy. The banking industry is not immune from the going on in its external environment.
Our present society is morally bankrupt. Little or no premium is put on things like honesty,
integrity and good character. The society does not question the source of wealth. Any person
who stumbles into wealth is instantly recognized and honoured. It is a fact of our time that fraud
has its root firmly entrenched in the social setting where wealth is honoured without questions.
Ours is a materialistic society which to a large extent encourages fraud. The desire to be with
the high and mighty calibre of the society, extreme want that is often characterized by need,
cultural demands or the cultivation of a life too expensive for the legitimate income of the
individual.
Our societies have debased the entire old moral standards and appear to be unconcerned with
probity, honesty, integrity and “good name”. The family friends, the religious houses and
society at large seem not to care how you come about your riches but accept, accommodate and
even respect you for your wealth, however, dishonestly it has been acquired. All these
encourage fraud as the end seems to justify the means, and no means seems to be morally
unacceptable. With reference to fraud, criminal motivation is said to be pathological when the
state of mind of the criminal disposes and impels him to commit fraud even though he is not in
dire need of the resources. Bank frauds seriously endanger the organizational growth of a bank
as it leads to bank distress. This is because fraud reduces the deposits of depositors and
ultimately leads to the erosion of the capital base of banks. The cost of fraud is also usually
difficult to estimate because not all frauds are discovered or even reported since most banks
have a propensity to cover up the frauds emanating from their banks, all in a bid to continue to
gain customers goodwill and stimulate their clients’ confidence all the time.
1. Slow and Tortuous Legal Process

In Banks there is a slow legal process which is one of the reasons for occurring the frauds. If in
every bank there is a strong measures and fast legal process to deal with the frauds then chances
of will be less or minimize. So every bank there should be strong procedures to handling this
type of baking frauds.

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2. Poverty
The reason for banking frauds is poverty. In India there is so much poverty so that people are
makes the frauds for removing there poverty because some peoples wants the all type of
facilities in their life and wants to improve their standard of living. So they started the illegal
activities for earning money. So poverty is also leads to banking frauds.
3. Widening Gap between the Rich and the Poor

In India there is so much gap between the rich and poor people. Because of money some
peoples are behaving different .In most of sectors there is a partiality between the rich and poor
peoples. So this gap is increasing by day –today and this leads to the banking frauds and scams.
4. Job Insecurity:
Nowadays job insecurity is one of the serious problems that leads to banking frauds. Permanent
jobs are very less. So for living the money is so much important. The needs and wants of the
people are increasing so money is become necessary to satisfied that needs and wants. Because
of the job insecurity some peoples want to reserve money that in future they can use. So for
satisfying the future needs and wants he is undertake the baking frauds.
5. Peer Group Pressure:

Another reason for happening the frauds is that there is peer group pressure in some of the
banks. So because of that people are doing this illegal activities which are very harmful to all
the society.
6. Increased financial burden on Individuals:

There is so much financial burden on each and every individual so because of that financial
burden people are stated to earning from doing the bank frauds.

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7. Lack of Proper Training

There is lack of properly trained and experienced person. There is a sudden and tremendous
increase in banking business. The sudden expansive explosion has created a vacuum of
personnel. New recruits often do not have adequate training or experience before they are put in
responsible positions. The findings reveal that 68.77% of respondents have not undergone any
formal training in prevention of bank frauds.
8. Lack of Sufficient Staff

Moreover bank staff feels overburdened. The life has become too fast. The banker does not have
enough time to scrutinize documents thoroughly. About two thirds of the respondents feel that
they do not have sufficient staff to carry out the work meticulously. The overburdened staff was
given the highest weight age as the reason responsible for bank frauds

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CHAPTER NO-11
TRIANGLE OF FRAUD
Classical Fraud Motivation Model

Banking Fraud is at present one of the most commonly perpetrated, but thoroughly undetected
and unreported crimes in Indian banking industry. Banking Fraud is broadly defined, but can be
considered to be any intentional deception that is characterized by a false representation of a
material point, which is then believed and acted upon by the victim, to their detriment. A
speaker at a business advisory conference recently outlined a set of the usual characteristics of a
company that may lead to fraud. Some of these included low morale, high turnover of staff,
management attitude, lowly skilled & trained staff, analytical anomalies, salary structures tied to
profits and no education on how to report fraud. He emphasized the point that awareness and
education is the key to defeating fraud.
As you can see, while it is a bit light in the pressure section, the speaker has common
characteristics leading to bank fraud. It is probably also include employee unwillingness to take
holidays as an opportunity, and low employee satisfaction as a rationalization, as common
characteristics. In regards to the point of awareness and education being key to defeating bank
fraud, It would say in a broad sense, this is correct. Employees and employers both need to be
aware of the prevalence of bank fraud, how bank fraud is commonly perpetrated, and how to
combat bank fraud. The systems of stopping bank fraud, how to recognize bank fraud and the
attitudes to convey for these fraud are imperative for employers to learn and implement. So,
again, of course education and awareness is key to defeating fraud, or at least minimizing it
greatly, but there is a lot more to it than simple education. So the triangle of the bank fraud is
explained as follows:
1. Opportunity
The executor of fraud must believe that he or she can commit the fraud without being caught (or
if caught, nothing grave will happen). The opportunity to commit fraud is possible when
employees have access to assets and information that allow them to both commit and conceal
fraud. Opportunities are provided by a weak internal control environment, lack of internal
control procedures, failure to enforce internal controls and various other factors such as apathy,
ignorance, lack of punishment and inadequate infrastructure.

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2. Rationalization
The third driver of fraud is ability of the perpetrators to find a way to rationalize their actions as
acceptable. Rationalization/Absence of guardians refers to the manner in which people think
about their work, performance and contribution within the workplace. They, therefore, attach a
value that they should derive from the company for being productive or delivering something of
value. Absence of guardians, on the other hand, refers to the situation.
3. Pressure
Every fraud executor is confronted with some kind of pressure or “need”. Pressures that
motivate individuals to commit fraud are financial pressures (high medical bills or debts), vices
(drugs, gambling, alcohol), work-related pressures (high pressure for good results at work or a
need to cover up someone’s poor performance, or to report results that are better than actual
performance compared to those of competitors) and other pressures (frustration with the nature
of work, or even a challenge to beat the system). This need‟ or greed usually has a combination
of other factors such as the opportunity and the attitude to commit the fraud.

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CHAPTER NO-12
FRAUD DETECTION IN REAL-TIME FOR BANKS
Statutory requirements clearly show that bank fraud poses a serious threat to banks. While
retrospective fraud detection was top priority in the past, the focus is now on early detection or
prevention. Prevention measures aim at the early detection and handling of fraud risks to prevent
financial and reputational damage. There are offers bank an integrated anti-fraud solution that not
only detects bank fraud but assesses and thwarts transaction and process alerts in real-time. Apart
from the bank's database-founded risk analysis, the solution offers initial and continual risk
classification for new and existing customers and provides due diligence functionality in the
attached research system. The alerts generated by the system are based on customer and
transaction data, event patterns and correlations, and on custom user settings. The imbedded real-
time module grants minimal response times with high decision quality and aims at fraudulent
activities with a high damage potential. Clear-structured dashboards visualize cases of bank fraud,
suspicious activities reports, and detected alerts.
Some solutions offer:
• Coverage of all statutory requirements

• Real-time analysis of data and events to trigger alerts
• Simulation options (what–if analyses)
• Multi-clients and multi-lingual user interfaces
• Standard modules and flexible adjustment options
• Best-practice check scenarios from a large number of customer installations
• Easy integration with banking systems through standardized and flexible interfaces.

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CHAPTER NO-13
ACTIONS TAKEN BY BANK TO MINIMIZE THE BANK

FRAUDS
1. Assess fraud implication of banks Strategy
The fraud function has an opportunity to transform its role and status by thinking and acting
more like a stakeholder in the business. This involves assessing the risk factors and their relative
volatility, adopting a more commercial and customer-focused approach and using technology
innovation to provide customer-centric solutions. Understanding the risks will enable capability
or knowledge gaps to be identified and mitigating actions to be taken. Our research has found
that the innovation agenda is central to banks strategic growth plans and therefore will open up
new risks for banks in the areas of fraud management and IT security. Experience also shows
that business units in many organizations elect for point solutions. When this occurs, there is a
clear risk that a lack of coordination and integration will seriously undermine the effectiveness
and efficiency of enterprise-wide fraud management.
2. Model customer behaviours and situations
Fraud solutions and offerings should be developed and refined to address the risks of individual
customers or customer segments. Fraud interventions which impact the customers should be
based on individual customer behaviour and circumstance. This positions the fraud management
function as an insightful guide to the business, enabling the design and implementation of robust
fraud mitigation as part of the overall customer offering. For example, gaining a better
understanding of current and future customer demographics provides the opportunity to predict
future vulnerabilities thereby turning fraud management into a competitive advantage by
developing products and services that meet the needs of customers.

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3. Develop Dynamic Analytical models
Our experience is that banks have historically deployed anti-fraud and anti- AML solutions
without the appropriate capabilities for dynamic optimization. Fraud management must be highly
responsive, as criminals are more sophisticated and increased processing power is available
through cloud technologies. Organizations that fail to maintain and optimize their systems are
likely to be targets for fraudsters. Typically, to optimize analytical models, banks need to interact
more closely both with internal and external analytical resources and with software suppliers.
Fraud teams need to be equipped with the skills and processes to manage.
4. Develop Pan-Channel Customer Authentications

Customer on-boarding and ongoing authentication policy are no longer the preserves of the
compliance function or of the individual channel owner. These are essential elements of the
customer’s experience and therefore key to business growth and customer retention. The fraud
management team, as trusted advisor, needs to work with the business to develop a panchannel,
customer-centric authentication strategy that provides consistency of customer experience and
reduced cost for deployment while managing risk. The authentication strategy will shape the IT
strategy, and the development of strategy should cover the following four key elements to
optimize the business value derived: first, define authentication; second, develop the
authentication solutions; third, mobilize the change, and fourth, communicate the strategy.
5. Develop the IT Strategy for Holistic Decision
The first step revising the IT strategy to incorporate Customer Authentication Strategy and
Analytical Capability Requirements is considered very important. Second, banks should consider
what changes would need to be made to effect decisions based on a holistic overview of the
many different aspects of a transaction, whether such aspects involve a customer, member of
staff, retailer, device or anything else.

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CHAPTER NO-14
PRESENT NEW FRAUD PREVENTION CHALLENGES
1. Changing customer demographics

Populations are aging; creating a large group that has assets but is vulnerable to attack. Whilst
some financial crime committed against the elderly is committed by strangers, this group can
also be vulnerable to exploitation by relatives and caregivers. And 2.5 million of those people
were fraud victims. It is found that many victims are unlikely to tell anyone about it, and that
there is still a feeling of embarrassment related to being scammed. Only 8% went to the police,
9% got advice from organizations such as the Citizens Advice Bureau, and 72% did not tell
friends or family about it. The research also found that the most common type of scam people
fell for was online fraud, with 34% of scams occurring via the internet. As the numbers of people
using family or other caregivers to help them manage their finances rises, banks may want to re-
think their approach to how customers identify themselves as the customer’s “team” will require
access to funds in this environment. To do this successfully, Banks would have to look at each
customer as an individual and, by extension, look at each individual transaction holistically.
2. Market expansion
Banks’ expansion into emerging markets is likely to continue as they represent circa 50 of GDP
and only 30% of the global consumer banking revenue pool. However, fraud management and
prevention techniques in emerging markets are not fully mature and a rush to expand into these
markets could lead to significant fraud losses. Know Your Customer (KYC) data in emerging
markets pose specific problems for banks seeking to limit fraud losses. In addition, international
cyber-criminals will be tempted to operate in markets where they feel fraud controls are less
sophisticated and local criminals may migrate to bank fraud From other crimes. Rapid
urbanization accelerates the trend toward increased fraud, putting Criminals in closer proximity
to each other and encouraging the sharing of information as Well as the recruitment of allies and
accomplices. Among the top 150 cities worldwide, 116 Are in emerging markets.

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The volume of international payments traffic will also increase in Line with growth in emerging
markets, which makes it easier for perpetrators of fraud to Conceal their activities. This creates
the risk of volumes overwhelming existing (often Manual) fraud controls. Large migrant
communities may need transfer and payment systems To support the flow of remittances to home
countries. Indeed, remittances sent home from Migrant workers are estimated to be three times
the flow of aid sent from rich countries to Poorer countries. While much of this money is used
for immediate family needs, there is a Significant portion available for savings and investment
and banks have targeted this market With new products and offerings.

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CASE STUDIES
HARSHAD MEHTA SCAM
FRAME OF THE SCAM: -

The name Harshad .M. Mehta was in the focus of public attention in the year 1992 with a
number of financial crimes charged on him. Harshad Mehta was an Indian Stock broker who
was purported for a huge stock deployed scheme bankrolled by insignificant bank receipts,
which his company negotiated in ready forward transactions between banks. There were nearly
27 criminal charges filed against him.
Harshad Mehta born in 1954 grew up in Raipur and worked in the New India Assurance
Company. But in the year 1980 he quit his job only to join the stockbroker P. Ambalal who
was affiliated to the BSE. Later in 1981 Mehta worked as a sub broker for stockbrokers J.L.
Shah and Nandalal Sheth. Once he gained enough experience Mehta along with his brother
Sudhir came up with a new project in the name of Grow More Research and Asset
Management Company Limited. Later Mehta’s company seeked for the financial support of
J.L. Shah and NandalalSheth when BSE offered for a sale of broker’s card. Another name
which was in the conversation of Harshad Mehta scam was Nimesh Shah who played a very
safe game and however he is supposed to be a heavy player in the Indian stock market.
HARSHAD MEHTA AND STOCK EXCHANGE: -

Soon Harshad Mehta started buying shares in heavy numbers and soon his name became very
well known in the Indian Stock market. The problem actually started when Mehta started
buying the shares of Associated Cement Company (ACC) and increased the price of the shares
from Rs.200 to Rs. 9000 (approx.) which according to the stock markets norm was a rise of
about nearly 4400% rise in its price. Harshad Mehta was able to convince the reason behind the
high level bidding as for the replacement cost theory which defines that the old companies can
be marked or valued only based on the amount of money which is required to produce another
similar company in par. This is called as the replacement cost theory. Mehta’s firm also acted
as a broker for what is generally assumed or believed to be as collateralized bank receipts
which was not actually collateralized.

67
These bank receipts were thus used in hot-term bank-to-bank lending, known as “ready
forward” transactions. Soon people started calling him as the “Big Bull” as he paved way for
the Big Bull run of the Stock Market. But the actual fact was Harshad Mehta used the
advantages of the many loopholes in the banking system and evacuated off funds from inter-
bank transactions.

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DETAILED REPORT
As he was doing this he also apart from the ACC shares bought various other industrial shares
at a heavy premium which led the sensex to rise subsequently. However this strategy of
Harshad Mehta didn’t hold good for a long time and was soon exposed so the banks started to
demand their money back. This obviously led the sensex to dive back at the same rate at which
it reached its peak. As a result of this there were lot charge sheets filed against him of nearly 72
criminal offences and 600 civil actions. Thus the scandal of Harshad Mehta came into public.
Harshad Mehta was declared to be guilty of the criminal offence by the verdict of the Bombay
High Court and Supreme Court of India for his part in a financial scandal valued at INR 4999
crores (US$830 million) which took place in the Bombay Stock Exchange (BSE).This in a way
helped the Bombay Stock Exchange and SEBI to bring about new rules which helped to cover
the ambiguity or the inadequacy in the law.
INVESTIGATION
This was very clearly explained by the veteran writer Sucheta Dalal in Times of India of how
the scam got its shape by the ready forward (RF) deal. The RF is a fortified loan given from
one bank to another for a very short period of time. In the normal case the bank lends against
government securities where the bank which is borrowing gives away the securities to the
lending bank at a very higher rate and get back the securities at the end loan period. In a ready
forward deal the broker acts as a mediator to bring both the banks together and they get a
commission for it and by no chance they handle either the cash or the securities. But this was
not the curtain raiser in Mehta’s case where his firm used the same RF deal and channelized
money through the banks successfully. In Mehta’s case both the securities and the money was
transferred through the brokers where they acted as an intermediary who received the securities
from the seller and handed them over to the buyer and he received the check from the buyer
and subsequently made the payment to the seller

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UNDERTAKING THE TRANSACTION ON BEHALF OF A BANK

In this case the Mehta firm was very clever enough even in not enabling the buyer and the
seller to know each other’s identity. This was beautifully handled by the brokers as they were
already the market makers and they were behaving to be undertaking the transactions on behalf
of a bank to sustain a semblance of validity. Whereas Mehta used another tool which is the
bank receipt (BR) which was given by the seller to the buyer establishing the sale of securities
and a solemn promise to give the securities to the buyer. Thus in due course the securities are
held in the seller’s trust by the buyer. Harshad Mehta used this method where he located two
banks namely the Bank of Karad (BOK), Mumbai and the Metropolitan Cooperative Bank
(MCB) who were ready to give counterfeit bank receipts without any government securities.
Using these fake bank receipts Mehta was able to borrow money from other banks thinking that
they were lending it against government securities. Mehta used the money thus got in this way
to elevate the prices of the share in stock market. The shares were then sold for significant
profits and the BR retired when it was time to return the money to the bank.

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SITUATION CAUSING TO FUNCTION A HUGE INCREASE IN THE

PRICES OF STOCK:
Harshad Mehta used this technique of exercising unscrupulous control over the situation
causing to function a huge increase in the prices of stock. However many banks soon realized
that they were holding fake BR’s which was of no use at all but however by then Mehta was
smart enough to scam the banks an amount of nearly Rs 4,000 crores. Once this scam was
brought into light and taken to the Parliament, Harshad Mehta was immediately taken to
prison. But however when this scam was exposed the chairman of Vijaya Bank committed
suicide feeling culpable of having given lot of cheques to Mehta thereby holding responsible to
the public money. Thus Mehta was charged with 72 criminal offences and more than 600 civil
action suits against him and was arrested on these grounds on November 9th in 1992. His
brothers were also arrested along with Mehta. The arrest warrant was issued based on the
grounds of misappropriating more than 2.8 million shares (2.8 million) of about 90 companies,
including ACC and Hindalco, through forged share transfer forms.
AFTER NINE YEARS OF DEATH OF HARSHAD MEHTA: -
But however it was the majority who won and he was put behind bars in the Thane prison. But
on 31st of December 2001 Mehta passed away as a result of heart ailment in the Thane civil
hospital. It was only after a period of nine years of Harshad Mehta’s death that the Public
Sector banks (PSBs) and the Income tax departments have regained a remarkable and
noteworthy amount of their hold after the process of liquidating Mehta’s assets from the
security scam. Harshad Mehta’s properties and assets were attached to repay the scam amount
and thereby making payment of about Rs1, 995.66-crore to the I-T department and Rs 199.25-
crore to the State Bank of India (SBI). This happened nearly after nine years of death of
Harshad Mehta. The total principal amount of SBI which was about Rs 1,000-crore have been

71
largely settled by Mehta’s group.

.
CHAPTER NO-15
CONCLUSION
Bank frauds are done to make money by cheating the banks. There are several loopholes in
banking system that has been used by fraudsters. The number of bank frauds has been increasing
year on year along with that, RBI also engaged in making the banking system accurate and
secure. IT in banking sector is much more advanced than the traditional banking. Online
transactions are widely used than the manual transactions. Due to the frauds the profit of the
company is getting affected.
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property
owned or held by a financial institution, or to obtain money from depositors by fraudulently
posing as a bank or other financial institution. Bank frauds concern all citizens. It has become a
big business today. Bank frauds are the creation of professional criminals, desperate customers
or of errant bankers or their collusion inter se. However the prima donna in the drama is the
insider or the banker. He opens the purse. He is often the target and at times the tool.
Occasionally, he is the victim of the temptations. There are internal factors and external factors
which are responsible for banking frauds and scams. There are two categories of banking frauds
i.e. banking frauds done insiders and frauds done outsiders. There are some effects of these
frauds on banks like public loss confidence in banks, loss of bank money, it helps to increase the
operating cost of banks, low asset quality, reduced the amount of profit, creditability etc. But
there are also bank rules to prevent the banking frauds and scams. The Reserve Bank of India
(RBI) has drawn up new rules for banks aimed at preventing frauds and irregularities. Banks
take actions to minimize these bank frauds. There are always new challenges in banking sector
but they are competent to deals with that challenge.

72
BIBLIOGRAPHY
http://www.manupatrafast.com/articles/PopOpenArticle.aspx?
http://www.slideshare.net/akshayvirkar/frauds-scams-in-banks
https://www.anz.com/personal/ways-bank/security/onlinesecurity/threats-banking-safety/fraud-
types/
http://in.ask.com/wiki/Bank_fraud?
lang=enhttp://www.ehow.com/about_6396210_online-bankingfraud_.htmlhttp://
www.wisegeek.com/what-is-bank-fraud.htm

73
An Analytical Study Of Kokan Mercantile

Bank Ltd.
* Indicates required question
1. Name *
2. Occupation *
3. Annual income
4. Name of your bank *
5. Do you think that your bank caters (satisfy) all your banking needs? *
Check all that apply.
Yes
No

74
6. What kind of account do you maintain in this bank? *
Current A/c
Saving A/c Loan

A/c Demat A/c
Other:
7. For the past how many years are you using the bank services? *
8. Which of the following facilities is given more importance in your bank? *
ATM facility
Loan facility
Overdraft
facility
Other:
9. Does your bank have core banking facility to the customer? *
Mark only one oval.
Yes
75
No
Maybe
10. When you think of your bank, what comes first in your mind? *
Personalized
service
Customer service
Wide branch
network
Computerized banking Other:
11. Do they charge unnecessarily for not maintaining minimum balance in your *
account?
Yes
No
12. Do you think your bank offers competitive interest rate? *
Yes
No
13. Do you use the service of alternative bank? *
Mark only one oval.

76
Yes No
14. What do you feel about overall service quality of your bank? *
Mark only one oval.
Excellent
Very good
Good
Fair
Poor
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77
CHAPTER 3
RESEARCH METHODOLOGY
Introduction In this chapter, the research methodology used in this study is described and the research
propositions relating to the objectives of the study are stated. Methods available for collecting data and the
characteristics of the sample group are set out in this chapter. Also, it forms the core of the research and
elaborates on the research design, sampling plan, data collection techniques and statistical tools applied.
Research Design:
Research design is a systematic way of collecting information which can be statistically analyzed to find a
solution to a problem statement. Kerlinger (1973) states research as: the systematic, controlled, empirical and
critical investigation of hypothetical propositions about the presumed relations among natural phenomena.
Leedy & Ormrod, (2005) defined research from a more utilitarian point of view: It is a procedure by which
we attempt to find systematically, and with the support of demonstrable fact, the answer to a question or the
resolution to a problem. In the present study, the researcher has adopted exploratory research method to
identify the problem statement after reviewing the literature on CG, cases of corporate frauds reported and
published in the banking sector, a discussion with the subject matter experts, CG guidelines recommended by
SEBI and RBI, reviewing the report on CG from the annual reports of public and private sector banks. In
addition to this the researcher has reviewed newspaper articles and peer reviewed journals to gather in-depth
insight about the subject matter as a result the scope of conducting research in this framework has emerged.
Literature review highlighted the innumerable challenges of enabling good CG practices in the Indian
banking sector. While conducting a literature review statistical figures from referred journals and other
secondary sources were duly considered by the researcher. Due care was taken to acknowledge the original
authors, books, report 80 and websites. Research design adopted for the study has been both quantitative and
qualitative in nature. The study was depended on primary as well as secondary data.
Type and Nature of Study:
Conclusive research is carried out to test and validate the formulated hypotheses and specified relationship.

78
The present study was conducted to test and find out the relationship between CG parameters and corporate
frauds. It was also quantitative in nature, as numerical data was collected and analyzed using statistical tools.
Conclusive research is more likely to use statistical tests, advanced analytical techniques, and larger sample
sizes, compared with exploratory studies. Conclusive research is more likely to use quantitative, rather than
qualitative techniques” (Nargundkar, 2008, p.39). Malhotra and Birks (2000, p.76) divided conclusive
research design into further two categories: descriptive research (used to describe some functions or
characteristics) and causal research (used to research cause and effect relationships).
The present study is also qualitative in nature, wherein CG disclosure index percentage of public and private
sector banks were studied with the help of the report on CG stated in their annual reports. The content
analysis method w 81 fraudulent activities, and the corrective measures needed. The survey questionnaire
was published as an e-survey in Jan 2010 and was circulated to more than 1000 leading organizations in
India. The survey respondents include chairman/MD, CFO and Heads of Internal audit and compliance,
fraud risk managers and other senior management personnel across various industry segments. More than
75% of the respondents in the survey believed that fraud in corporate India is on rise and 81% stakeholders
in India continue to perceive financial statement fraud as a major area of concern and other reasons are
ineffective whistle blowing systems and weak regulatory environment are prevailing in India.
A study conducted by Ernest & Young (2012) on the fraud status and CG in India in its report revealed
about the robust steps taken by Indian government to increase the confidence of investors, corporates and
public. In the recently concluded parliamentary sessions, two important bills were introduced — the
Prevention of bribery of Foreign Public Officials Bill and The Anti-Corruption, Grievance Redressal, and
whistle blower Protection Bill.
In an another significant development, the government is working on the Lokpal Bill, which aims to create
stricter regulations and has given more credibility to its fight against bribery and corruption. This study aims
to understand how businesses have coped with increasing fraud and corruption risk last year, what the
emerging fraud risks in the industry.

79
Deloitte (2012), Indian Banking Fraud Survey, in its report stated that Indian banking sector is growing at a
rapid pace and with the government giving green signal for the new banking licenses, the environment will
become more difficult and challenging. The survey conducted by Deloitte has revealed that, ‘banks have
witnessed high number of fraud cases in the last one year and the numbers will rise in coming future’. The
survey of the respondents show that 37% believe that lack of oversight by the line managers to the deviation
in existing processes in the major reason of fraud. Also, that majority of the frauds are incidents were
detected through a formal and informal complaint mechanism. The report shows the upcoming challenging
for the banking and how to deal with it in future. 82 Global Fraud Report (2012), Kroll Advisory Solutions
in its report showcased the global fraud scenario by conducting survey of more than 830 senior executives
and worldwide.
Primary Data: - Primary data was collected from the city of Mumbai. The questionnaires were responded
by the bank employees and the stakeholders associated with public and private sector banks.
Secondary Data: - The secondary data was collected from the website of public and private sector banks
wherein the report on CG was studied from the annual reports of the selected banks for the financial year
2011-12, 2012-13, 2013-14. The data related to history, growth and development of Indian banking sector
and selected banks were collected mainly from the books, magazines relating to the banking sector,
published paper by RBI, reports, articles, news papers, speeches and other journals like monthly review of
Economy and RBI & NFCG websites.
FRAUDS DONE BY INSIDERS
1. Rogue Trading:
A rogue trader is a highly placed insider nominally authorized to invest sizeable funds on behalf of the bank;
this trader secretly makes progressively more aggressive and risky investments using the bank's money,
when one investment goes bad, the rogue trader engages in further market speculation in the hope of a quick

80
profit which would hide or cover the loss.

Unfortunately, when one investment loss is piled onto another, the costs to the bank can reach into the
hundreds of millions of rupees; there have even been cases in which a bank goes out of business due to
market investment losses.
2. Fraudulent loans:

81
One way to remove money from a bank is to take out a loan, a practice bankers would be more than willing
to encourage if they know that the money will be repaid in full with interest. A fraudulent loan, however, is
one in which the borrower is a business entity controlled by a dishonest bank officer or an accomplice; the
"borrower" then declares bankruptcy or vanishes and the money is gone. The borrower may even be a non-
existent entity and the loan merely an artifice to conceal a theft of a large sum of money from the bank .
3. Wire fraud:

82
Wire transfer networks such as the international, interbank fund transfer system are tempting as targets as a
transfer, once made, is difficult or impossible to reverse. As these networks are used by banks to settle
accounts with each other, rapid or overnight wire transfer of large amounts of money are commonplace;
while banks have put checks and balances in place, there is the risk that insiders may attempt to use
fraudulent or forged documents which claim to request a bank depositor's money be wired to another bank,
often an offshore account in some distant foreign country. Wire fraud is defined as attempting to defraud
using electronic means, such as a computer or telephone. What must be proved is that the person knowingly
and willfully devised or intended to devise a scheme to defraud. Since the advent of the internet, there are
literally thousands of crimes that fall under the definition of wire fraud. Here we’re going to take a look at
some of the more common forms of wire fraud, why they occur, and how you can protect yourself.
*While security measures have certainly increased over the years, banks still fall victim to wire fraud,
costing them millions of dollars or more every year. Since banks are constantly wiring extremely large sums
of money back and forth between accounts, it may take them awhile to notice when a large sum of money
goes missing. This type of fraud is usually perpetrated by insiders who forge documents wire money to
foreign accounts. Other common ways this can occur is via the internet, through fraudulent activity such as
stolen identities, stolen credit card numbers, and hacked internet banking accounts

83
Wire fraud on internet
There are many

other forms of wire
fraud that may occur on
the internet. A few
common ones
are:
• Email
Phishing:
The practice of
sending out fake
emails that look legitimate, in order to steal information such as passwords, credit card numbers, or personal
information.
• Identity Theft:
Usually perpetrated by people who set up legitimate looking websites designed to trick users into submitting
personal information, similar to a loan or insurance application.. Other methods may include hacking
databases containing business information, or accessing a personal hard drive illegally to steal personal
information.
• Fraudulent Business Sales:
This is a common scam targeting webmasters and potential investors. When valuing an internet business,
revenue, traffic, and the future potential value of the website are used to estimate the value. By faking

84
revenue and traffic proof, a con artist can inflate perceived value of the website, sometimes scamming
victims out of thousands of dollars. Wire Fraud On The Phone Wire fraud commonly occurs over the
telephone as well. A con artist will call your house, and try to talk you out of personal information.
Common scams involve criminals posing as salesmen, loan officers, and other business professionals in
order to collect personal information such as credit card numbers or social security numbers.
Measures from protecting the Wire frauds
Wire fraud is a very real threat in the world today. By using a little bit of common sense, you can avoid
becoming a victim yourself. Don’t give out personal information over the telephone to unsolicited callers
without doing an extensive check on their background. Be careful what kind of websites you use to conduct
financial transactions. There are many legitimate websites where doing credit card transactions, or even loan
applications are extremely secure. Be wary of any unknown websites. Bottom line; don’t give out your
personal information to strangers. With just a little bit of common sense you can avoid becoming a victim of
wire fraud yourself.
4. Demand draft fraud:

85
Fraud is usually done by one or more dishonest bank employees that is the Bunko Banker. They remove few
DD leaves or DD books from stock and write them like a regular DD. Since they are insiders, they know the
coding, punching of a demand draft. These Demand drafts will be issued payable at distant town/city
without debiting an account. Then it will be cashed at the payable branch. For the paying branch it is just
another DD. This kind of fraud will be discovered only when the head office does the branch-wise
reconciliation, which normally will take 6 months. By that time the money is unrecoverable.
5. Theft of identity:
Dishonest bank personnel have been

known to disclose depositors' personal information for use in theft of identity frauds. The perpetrators then
use the information to obtain identity cards and credit cards using the victim's name and personal
information.
Impact of Identity Fraud:
The growth in identity fraud victimization rates over the past year is harmful not only because of the dollar
losses caused from identity fraud, but also because of the emotional impact on the victims. Identity Fraud
victimization and the accompanying fear it generates lowers faith in the safety of the system and causes
86
secondary effects, which are demonstrated by changes of behaviour, such as avoidance of certain merchants,
altered usage of payment types and channels, and severed relationships with primary card companies and
banks. The increased fraud incidence is being driven by the poor economy coupled with an increasingly
global, hierarchal and sophisticated criminal enterprise that specializes in developing new weapons of
attack. Meanwhile the consumer costs, the dollar amounts the victim pays on average out-of-pocket, reached
an all-time low.
The relation of identity fraud is explained through following the following diagram:
6. Forged or fraudulent documents:

87
Forged documents are often used to conceal other thefts; banks tend to count their money meticulously so
every penny must be accounted for. A document claiming that a sum of money has been borrowed as a loan,
withdrawn by an individual depositor or transferred or invested can therefore be valuable to a thief who
wishes to conceal the minor detail that the bank's money has in fact been stolen and is now gone.
7. Uninsured deposits:
There are a number of cases each year where the bank itself turns out to be uninsured or not licensed to
operate at all. The objective is usually to solicit for deposits to this uninsured "bank", although some may
also sell stock representing ownership of the "bank". Sometimes the names appear very official or very
similar to those of legitimate banks. For instance, some banks with no license and no affiliation to its
seemingly apparent namesake; the real Chase Manhattan bank, New York. There is a very high risk of fraud
when dealing with unknown.

88
FRAUDS DONE BY OUTSIDERS
1. Bill discounting fraud:
Essentially a confidence trick, a fraudster uses a company at their disposal to gain confidence with a bank,
by appearing as a genuine, profitable customer. To give the illusion ofs being a desired customer, the
company regularly and repeatedly uses the bank to get payment from one or more of its customers. These
payments are always made, as the customers in question are part of the fraud, actively paying any and all
bills raised by the bank. After certain time, after the bank is happy with the company, the company requests
that the bank settles its balance with the company before billing the customer. Again, business continues as
normal for the fraudulent company, its fraudulent customers, and the unwitting bank. Only when the
outstanding balance between the bank and the company is sufficiently large, the company takes the payment
from the bank, and the company and its customers disappear, leaving noone to pay the bills issued by the
bank.
2. Forgery and altered cheques:
Thieves have altered cheques to change the name (in order to deposit cheques intended for payment to
someone else) or the amount on the face of a cheque (a few strokes of a pen can change 100.00 into
100,000.00, although such a large figure may raise some eyebrows). Instead of tampering with a real
cheque, some fraudsters will attempt to forge a depositor's signature on a blank cheque or even print their
own cheques drawn on accounts owned by others, non-existent accounts or even alleged accounts owned by
non-existent depositors. The cheque will then be deposited to another bank and the money withdrawn before
the cheque can be returned as invalid or for non-sufficient funds.
3. Booster cheques:
89
A booster cheque is a fraudulent or bad cheque used to make a payment to a credit card account in order to
"bust out" or raise the amount of available credit on otherwise-legitimate credit cards. The amount of the
cheque is credited to the card account by the bank as soon as the payment is made, even though the cheque
has not yet cleared. Before the bad cheque is discovered, the perpetrator goes on a spending spree or obtains
cash advances until the newly-"raised" available limit on the card is reached. The original cheque then
bounces, but by then it is already too late.
4. Stolen cheques:
Some fraudsters obtain access to facilities handling large amounts of cheques, such as a mailroom or post
office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a social or
veterans' benefit office (issuing many cheques). A few cheques go missing; accounts are then opened under
assumed names and the cheques (often tampered or altered in some way) deposited so that the money can
then be withdrawn by thieves. Stolen blank cheque books are also of value to forgers who then sign as if
they were the depositor.
5. Credit card fraud:
Credit card fraud is widespread as a means of stealing from banks, merchants and clients. A credit card is
made of three plastic sheet of polyvinyl chloride. The central sheet of the card is known as the core stock.
These cards are of a particular size and many data are embossed over it. But credit cards fraud manifest in a
number of ways. They are:
„« Genuine cards are manipulated.
„« Genuine cards are altered.
„« Counterfeit cards are created.
„« Fraudulent telemarketing is done with credit cards.
« Genuine cards are obtained on fraudulent applications in the names/addresses of other persons and used.
It is feared that with the expansion of E-Commerce, M-Commerce and Internet facilities being available on
massive scale the fraudulent fund freaking via credit cards will increase tremendously.
6. Accounting fraud:
In order to hide serious financial problems, some businesses have been known to use fraudulent
bookkeeping to overstate sales and income, inflate the worth of the company's assets or state a profit when
the company is operating at a loss. These tampered records are then used to seek investment in the
90
company's bond or security issues or to make fraudulent loan applications in a final attempt to obtain more
money to delay the inevitable collapse of an unprofitable or mismanaged firm.
7. Cheque kiting:
Cheque kiting exploits a system in which, when a cheque is deposited to a bank account, the money is made
available immediately even though it is not removed from the account on which the cheque is drawn until the
cheque actually clears. Deposit 1000 in one bank, write a cheque on that amount and deposit it to your
account in another bank; you now have 2000 until the cheque clears. In-transit or non-existent cash is briefly
recorded in multiple accounts.
A cheque is cashed and, before the bank receives any money by clearing the cheque, the money is deposited
into some other account or withdrawn by writing more cheques. In many cases, the original deposited cheque
turns out to be a forged cheque. Some perpetrators have swapped checks between various banks on a daily
basis, using each to cover the shortfall for a previous cheque. What they were actually doing was check
kiting; like a kite in the wind, it flies briefly but eventually has to come back down to the ground.
8. Stolen payment cards:
Often, the first indication that a victim's wallet has been stolen is a 'phone call from a credit card issuer
asking if the person has gone on a spending spree; the simplest form of this theft involves stealing the card
itself and charging a number of high-ticket items to it in the first few minutes or hours before it is reported as
stolen. A variant of this is to copy just the credit card numbers (instead of drawing attention by stealing the
card itself) in order to use the numbers in online frauds.
9. Duplication or skimming of card information:
This takes a number of forms, ranging from a dishonest merchant copying clients' credit card numbers for
later misuse (or a thief using carbon copies from old mechanical card imprint machines to steal the info) to
the use of tampered credit or debit card readers to copy the magnetic stripe from a payment card while a
hidden camera captures the numbers on the face of the card. Some thieves have surreptitiously added
equipment to publicly accessible automatic teller machines; a fraudulent card stripe reader would capture the

91
contents of the magnetic stripe while a hidden camera would sneak a peek at the user's PIN. The fraudulent
equipment would then be removed and the data used to produce duplicate cards that could then be used to
make ATM withdrawals from the victims' accounts.
10. Impersonation and theft of identity:
Theft of identity has become an increasing problem; the scam operates by obtaining information about a
victim, then using the information to apply for identity cards, accounts and credit in that person's name.
Often little more than name, parents' name, date and place of birth are sufficient to obtain a birth certificate;
each document obtained then is used as identification in order to obtain more identity documents.
Government issued standard identification numbers such as "Social security numbers, PAN numbers" are
also valuable to the identity thief. Unfortunately for the banks, identity thieves have been known to take out
loans and disappear with the cash, quite content to see the wrong persons blamed when the debts go bad.
11. Fraudulent loan applications:
These take a number of forms varying from individuals using false information to hide a credit history filled
with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order
to make a risky loan appear to be a sound investment for the bank. Some corporations have engaged in over-
expansion, using borrowed money to finance costly mergers and acquisitions and overstating assets, sales or
income to appear solvent even after becoming seriously financially overextended. The resulting debt load has
ruined entire large companies, such as Italian dairy conglomerate Parma at, leaving banks exposed to
massive losses from bad loans.
12. Phishing and Internet fraud:
Phishing operates by sending forged e-mail, impersonating an online bank, auction or payment site; the e-
mail directs the user to a forged web site which is designed to look like the login to the legitimate site but
which claims that the user must update personal info. The information thus stolen is then used in other
frauds, such as theft of identity or online auction fraud. A number of malicious "Trojan horse" programmers
have also been used to snoop on Internet users while online, capturing keystrokes or confidential data in
order to send it to outside sites.

92
13. Money laundering:
The term "money laundering" dates back to the days of Al Capone
Money laundering has since been used to describe any scheme by which the true origin of funds is hidden or
oncealed. The operations work in various forms. One variant involved buying securities (stocks and bonds)
or cash; the securities were then placed for safe deposit in one bank and a claim on those assets used as
ollateral for a loan at another bank. The borrower would then default on the loan. The securities, however,
would still be worth their full amount. The transaction served only to disguise the original source of the funds.
14. Forged currency notes
aper currency is the usual mode of exchange of money at the personal level, though in business, cheques and
rafts are also used considerably. Bank note has been defined in Section 489A.If forgery of currency notes
ould be done successfully then it could on one hand made the forger millionaire and the other hand destroy
he economy of the nation. A currency note is made out of a special paper with a coating of plastic laminated
n both sides of each note to protect the ink and the antiforgery device from damage. More over these notes
ave security threads, water marks. But these things are not known to the majority of the population. Forged
urrency notes are in full circulation and its very difficult to catch hold of such forgers as once such notes are
irculated its very difficult to track its origin. But the latest fraud which is considered as the safest method of
rime without making physical injury is the Computer Frauds in Banks.
Computerization of banks had started since 1994 in India and till 2000 4000 banks were completely and 9000
ranches have been partially computerized. About 1000 branches had the facilities for International bank
Transaction. Reserve Bank of India has evolved working pattern for Local area Network and wide area
Network by instituting different microwave stations so that money transactions could be carried out quickly
nd safely.
The main banking tasks which computers perform are maintaining debitcredit records of accounts, operating
utomated teller machines, and carry out electronic fund transfer, print out statements of accounts create
eriodic balance sheets etc. Internet facilities of computer have revolutionized international banking for fund
ransfer and for exchanging data of interest relating to banking and to carry out other banking functions and

93
rovides certain security to the customers by assigning different pin numbers and password

15. Advance Fee Fraud
This may involve an agent approaching a bank, a company or individual with another to access
large funds at below market interest rates often for long term. This purported source of funds is
not specifically identified as the only way to have access to it through the agent who must
receive a commission “in advance”. As soon as the agent collects the especially distressed banks
and banks needing large funds to bid for foreign exchange can easily fall victim of this type of
fraud. When the deal fails and the fees paid in advance are lost, these victims are not likely to
report the losses to the police or to the authorities.
16. Fund Diversion
In this case, bank staff sometimes diverts customers’ deposits and loan repayment for personal
use. Another case of this is the tapping of funds from interest in suspense accounts in banks.
17. Account Opening Fraud
This involves the deposit and subsequent cashing of fraudulent cheques. It usually starts when a
person not known to the bank asks to open a transaction account such as current and savings
account with false identification but unknown to the bank.
18. Counterfeit Securities
Counterfeiting of commercial financial instruments is one of the oldest forms of crime. Modern
photographic and printing equipment has greatly aided criminals in reproducing good quality
forged instruments. The documents may be total counterfeit or may be genuine documents that
are copied, forged or altered as to amount, payout date, pay or terms of payment. A common
fraud is to present the counterfeit stocks or bonds as collateral for loan. The presenter would
draw out the proceeds and disappear before the financial instruments are found to be counterfeit.

19. Money Transfer Fraud
Money transfer services are means of moving to or from a bank to beneficiary account at any
bank point worldwide in accordance with the instructions from the banks’ customers. Some
common means of money transfer are mail, telephone, over-the-counter, electronic process and
telex. Fraudulent money transfer may result from a request created solely for the purpose of
committing a fraud or altered by changing the beneficiary’s name or account number or
changing the amount of the transfer.
20. Letter of Credit Fraud
This generally arises out of international trade and commerce. They stimulate trade across
national borders providing a vehicle for ensuring prompt payment by financially sound
institutions. Overseas suppliers continue to receive spurious letters of credit, which are usually
accompanied by spurious bank drafts with fake endorsements which guarantee payments.
21. Computer Fraud
Computer Frauds involves the deceptive manipulation of the banks’ computer, either at the data
collection stage, the input processing stage or even the data dissemination stage. Computer
frauds could also occur due to improper input system, virus, program manipulations, transaction
manipulations and cyber thefts. It can also take the form of corruption of the programmed or
application packages and even breaking into the system through remote sensors. A banks’ data
can also be tampered with at the data centre to gain access to unauthorized areas or even give
credit to accounts for which the funds were not originally intended. This kind of fraud can
remain undetected for a long time. In this epoch of enormous deployment of automated teller
machines (ATMs) and online real time e-banking and commerce; computer frauds arising from
cyber thefts and crimes has assumed a very threatening dimension . No bank seems to be
invulnerable to it, and a considerable percentage of the enormous amount of money spent
annually in the banking sector to help reduce fraud usually are channelled towards fighting
computer frauds and cybercrimes and theft.
22. Clearing Fraud

Most clearing frauds hinge on suppression of an instrument so that at the expiration of the
clearing period application to the instrument, the collecting bank will give value as though the
paying bank had confirmed the instrument good for payment. Clearing cheques can also be
substituted to enable the fraudster divert the fund to a wrong beneficiary. Misrouting of clearing
cheques can also assist fraudsters to complete a clearing fraud. Askew, a local clearing item can
be routed to an up country branch; the delay entailed will give the collecting bank the
impression that the paying bank had paid the instrument.
23. Unofficial Borrowing
This occurs when bank employees borrow from the vaults and teller tills off the record. Such
unauthorized borrowings are done in exchange of the staff post-dated cheque or nothing. These
borrowings are more rampant on weekends and during the end of the month when salaries have
not been paid. Some of the unauthorized borrowings from the vault, which could run into
thousands of cedes, are used for fast businesses lasting a few hours or days after which the
resources are replaced without any substantiation in place that they were Taken in the first
place. Such a practice when done recurrently and with no official records, soon very easily
becomes prone to manipulations, whereby they resort to other means of balancing the cash in
the bank’s vault without ever having to replace the sums of money collected.
24. Voucher Manipulation
Manipulation of Vouchers involves the replacement or alteration of entries of one account to

another account being used to commit the fraud. This account would obviously be a fabricated
account into which the funds of unsuspecting clients of the banks are transferred. The amounts
taken are usually in small amounts so that it will not easily be noticed by top management or
other unsuspicious staff of the bank. Manipulation of vouchers can thrive in a banking system
saddled with inadequate checks and balances such as poor job segregation and lack of detailed
daily examination of vouchers and all bank records
CHAPTER NO-4
TYPES OF BANKING FRAUDS
As a customer you may be seen as a potential target for fraudulent activities. However by
arming yourself with information and tools you can protect yourself from becoming a victim of
fraud. Do you know the four biggest fraud threats you face Credit card and debit card fraud is a
crime whereby your credit or debit card can be reproduced in order to use the credit balance to
obtain a financial advantage. The creation and/or alteration of a credit/debit card occurs when
the information contained on the magnetic strip is reproduced. This type of me is known as
‘skimming’. Credit or debit card fraud can also occur when your card is lost or stolen and used
by a third party to purchase goods with those cards or to remove cash from the cards. Credit or
debit cards can also be intercepted in transit while being sent to you. Your cards can also be
compromised by a dishonest merchant who undertakes unauthorized duplicate transactions on
your card.
1. Protect your credit / debit card:
Memories your personal identification number (PIN). Don't use the same PIN for all your cards,
and don't choose your birth date or other easily identifiable numbers that might be on something
else in your wallet. Check statements and call your credit card issuer immediately if you see
anything suspicious on your bill. You could help the company uncover fraud—and save
yourself from paying unauthorized charges. Do not let your credit card out of your sight at any
time for example, at a restaurant go with the card. Card fraud is not applicable in Australia only
be just as vigilant when travelling overseas, credit card skimming is an international crime.
Always sign your card in ink as soon as you receive it. Keep track of when new and reissued
cards should arrive, and call the credit card issuer if they don't come on time.
2. Cheque Fraud:
Cheque fraud is the use of a cheque to get financial advantage by: altering the cheque
(payee/amount) without authority theft of legitimate cheques and then altering them duplication
or counterfeiting of cheques using false invoices to get legitimate cheques depositing a cheque
into a third party account without authority depositing a cheque for payment knowing that
insufficient funds are in the account to cover the deposited cheque

3. ATM FRAUD
Has your ATM got the ‘Jitters’? More and ATMs now have in-built skimming prevention
software. You may have noticed that your card enters and exits the card reader slowly, or jumps
like it has the 'jitters'. That's a sign that the ATM is helping to protect you against card
skimming.
Card skimming:
Card skimming is the illegal copying of a card's magnetic strip that can later be used to access
your account and make unauthorized purchases using those details. In the case of ATMs, this
typically occurs when the would-be thief places a device over the card entry point that scans the
cards as they enter and exit the ATM, combined with a hidden camera to record you while you
enter your PIN. The scanning device and camera can be cleverly disguised so that you don't
even notice the ATM has been modified.
What we are doing
To help prevent card skimming, more ANZ ATMs have been fitted with skimming prevention
software that 'shakes' the card as it enters and exits the ATM. The shaking interrupts the
scanning process and renders any skimming attempt ineffective All ANZ ATMs across
Australia have skimming prevention software. You will notice on our newer ATMs there is
either a green or blue plastic cover where you insert your card. This device is installed to alter
the shape of the card reader and making it difficult for the would-be thief to install a skimming
device on the ATM. ANZ are constantly looking at new technology for ensuring that customer
information and cash are secure at all times. Along with the skimming prevention software,
ANZ ATMs include the use of ink staining technology to deter theft.
4. Identity Fraud
Identity fraud can occur in many ways—from somebody using your credit card details illegally to make
purchases to having your entire identity assumed by another person to open bank accounts, take out loans
and conduct illegal business under your name.
How to protect yourself from identity theft:

• Never send money or give personal details to people you don’t know and trust.
• If you receive a call from your bank or any other organization, don’t provide your personal
details—instead ask for their name and a contact number. Check with the organization in
question before calling back.
• Never rely on a number provided in an email or click on the provided link—instead find the
contact number through an internet search or check the back of your ATM card.
• Regularly check your credit card and/or bank statements to ensure that suspicious
transactions are detected.
• Shred all documents containing personal information, such as credit card applications and
bank statements.
• Log directly onto websites you are interested in rather than clicking on links provided in an
email.
• Always get independent advice if you are unsure whether an offer or request is genuine.
• Lock your letterbox securely to avoid your mail being stolen.
• Ensure you choose passwords that are not easy for someone to guess, such as your date of
birth, pet’s name etc.
Signs of identity fraud
These can vary, but some typical signs that your identity is being used unlawfully are:
• A financial institution informs you they have received an application for credit that you have not
applied for.
• You receive phone calls or letters advising that you have been denied credit that you have not
applied for.
• You receive bank, mobile phone or credit card statements or notices in your name, of which you
have no knowledge.
• You notice that you no longer receive your bank or credit card statement or you notice that not
all your mail is being delivered.
What can you?

You should also advise any other financial institution that you bank with so they are aware of
the situation. Any instance of identity fraud should also be immediately reported to your local
police. It is also a good idea to advise close family and friends as identity theft rings will often
target more than one member of a household. In addition, consider contacting Veda
Advantage, a credit agency, to obtain your credit history report so that you are kept fully
informed of any unauthorized activity on your own file.
5. Deposit Account Frauds:
A Accounts opened without introduction or with improper introduction, frauds under this head
are generally attempted t the time of opening of new branch when such emphasis is not paid on
abstention of introduction. Once the account is opened, the miscreant deposits, stolen/materially
altered cheques for collection/payment etchant dormant account is fraudulently operated by a
forger on forged signatures.
Specimen signature card or signatures on letters are utilized as models:
1. Joint accounts are operated by one of the signatories (forger) by forging the signatures of others.
2. Mini deposit collections are not deposited by the collecting banker.

3. The banker becomes joint account holder and withdraws the money.
4. The banker manipulates the depositor’ Pass Book.
6. Purchased Bill Frauds:
The frauds in this area are often costly. They can take the following forms:
1. Bogus or stolen railway receipts and motor transport receipts accompanied by counterfeit bills
are discounted.
2. Fake bills with inflated value, drawn on sister concerns, for discounts.
3. Genuine bills and railway are presented and got discounted from the bank but the material is
got released from the railways on indemnity bond.
4. Bogus bills for worthless goods are discounted on the strength of dispatch papers

7. Hypothecation Frauds:
Cash advances, against pledged goods, as security are fertile fields for frauds.
1. Stocks or part thereof, are removed unauthorized from the god owns.
2. Advance against pledge/hypothecation of securities, pledging inferior quality of goods, overvaluation

of stocks.
8. Loan Fraud:
The general policy of the government is to encourage loans to agriculturists or to small artisans
and businessmen. In fact, certain targets for these purposes are fixed for the banks. In the initial
stages, it resulted in losses to the banks due to lack of expertise in the field. The following types
of fraud were perpetrated.
1. Loans are taken by different persons on the same time.
2. Nomadic artisans obtain loans and vanish from the scene.
3. False firms appear everywhere and obtain loans.
4. Loans taken for agricultural development were later used as marriage celebrations.
5. In connivance with the suppliers, farm machinery bills were inflated for accessories
which we never supplied and included in the bills.
6. Farm machinery purchased with loans and hypothecated to banks is sold without
informing the banks or returning the loans.
9. Fictitious entries made in book/ manipulation of record:
These frauds normally take place with the active involvement of staff or where the books are exposed
to the members of public. In such cases, subsequently the record is destroyed.

I. Cash shortages:
Cash the most sensitive asset of the bank is prone to fraud. The shortages of fraud there is
generally due to carelessness/negligence of the concerned staff who are the joint custodians of
cash.
I. Frauds in Borrower Accounts:
1. Advance against clean/documentary bills purchased/discounted. The borrower committed

frauds by tendering fake bills/accommodation bills/cheques for discounting. Later when the
bills/cheques are received unpaid, the banks find it difficult to recover the amount.
2. Advance under some priority sector schemes.

3. Advance granted in haste or at the behest of top management or any pressure or some
consideration.
4. Incomplete credit information.
5. Lack of post disbursement supervision.
6. Miss-use of discretionary powers or exceeding discretionary powers by Managers/Officers.
II. Frauds in Investment Portfolios:
Investment portfolio which constitutes a big chunk of the total assets of a bank is another fraud
prone area. The dealer in securities in the absence of proper policy, direction and adequate
system of checks and balances may misuse the position for his personal gains the detriment of
Banka€™s interest by putting through deals for passing on business to the brokers which are
otherwise not warranted by business considerations.
III. Frauds in Foreign Exchange Areas:
1. Frauds in this area are perpetrated in the dealing room operations, documentary credits,
export-import transactions, packing credit etc.

2. Some of the dealers have been put through fictitious deals with the help of brokers due to
lack of back-up functions.
IV. Frauds in computerized environment:
Hardware errors disable the working of any of the component of hardware with a view to
creating/temporary/permanent malfunction to either destroy the data or present its disclosure for
security. Pregame errors are created by miscreants to cripple the system or to siphoned off the
funds to unauthorized accounts or to prevent/reduce charges to select accounts. Data entry errors
are created by staff to give undue gain to interested accounts. Errors are made to give a wrong
picture of sanative data such as balances, classification of advances, outstanding dues, interest
rate applied etc.
V. Frauds in inter branch and inter bank accounts:
1. Debiting bank accounts without remitting cash.
2. Debiting branch adjusting account without remitting cash.
3. Adjusting branch books-clean cash.
4. Fraudulently debiting/crediting Head office account.
5. Debiting/Crediting various deposit accounts without authority.

CHAPTER NO 5
COMPUTER DEPREDATIONS
Computer depredations have by some been classified as
Computer frauds are those involve embezzlement or defalcations achieved by tampering with
computer data record or programmed, etc. Computer crimes are those committed with a
computer that is where a computer acts as a medium. The difference is however academic only.
Bank computer crimes are committed mainly for money, however other motive are a follow:
• Personal vendetta
• Black mail
• Ego
• Mental aberrations
• Mischief
Bank computer crimes have a typical feature, the evidence relating to crime is intangible. The
evidences can be easily erased, tampered or secreted. More over it is not easily detectable. More
over the evidence connecting the criminal with the crime is often not available. Computer crimes
are different from the usual crimes mainly because of the mode of investigation. There are no
eyewitness, no usual evidentiary clues and no documentary evidences.
1. Hi-tech crime:
The information technology is changing very fast. The normal investigator does not have the
proper background and knowledge .special investigators have to be created to carry out the
investigations. the FBI of USA have a cell, even in latest scenario there has been cells operating
in the Maharashtra police department to counter cyber crimes. C.B.I also have been asked to
create special team for fighting cyber crimes.
2. International crime:
A computer crime may be committed in one country and the result can be in another country.
there has been lot of jurisdictional problem an though the Interpol does help but it too has certain
limitations.

the different treaties and conventions have created obstructions in relation to tracking of cyber
criminals hiding or operation in other nations
3. No-scene crime:
The computer satellite computer link can be placed or located anywhere. The usual crime scene
is the cyber space. The terminal may be anywhere and the criminal need not indicate the place.
the only evidence a criminal leaves behind is the loss to the crime.
4. Faceless crime:
The major advantage criminal has in instituting a computer crime is that there is no personal
exposure, no written documents, no signatures, no fingerprints or voice recognition. The criminal
is truly and in strict sense faceless. There are certain spy software’s which is utilized to find out
passwords and other vital entry information to a computer system. The entry is gained through a
spam or bulk mail. The existing enacted laws of India are not at all adequate to counter cyber
crimes. The Indian Penal code, evidence act, and criminal procedure code has no clue about
computers when they were codified. It is highly required to frame and enact laws which would
deal with those subjects which are new to the country specially cyber law; Intellectual property
right etc.
The Reserve Bank of India has come up with different proposals to make the way easier, they
have enacted electronic fund transfer act and regulations, have amended, The Reserve Bank of
India Act, Bankers Book Evidence Act etc., experience of India in relation to information and
technology is limited and is in a very immature state. It is very much imperative that the state
should seek the help of the experienced and developed nations.

CHAPTER NO-6
EFFECTS OF FRAUDS ON BANKS
1. Loss of Public Confidence in Banks
Fraud is perhaps the most fatal of all the risks confronting banks. The enormity of bank frauds in
Ghana can be inferred from its value, volume and actual loss. A good number of banks’ frauds
never get reported to the appropriate authorities, rather they are suppressed partly because of the
personalities involved or because of concern over the negative image effect that disclosure may
cause if information is leaked to the banking public The banks’ customers may lose confidence
in the bank and this could cause a setback in the growth of the bank in particular.
2. Loss of Money
Fraud leads to loss of money, which belong to either the bank or customers. Such losses may be
absorbed by the profits for the affected trading period and this consequently reduces the amount
of profit, which would have been available for distribution to shareholders. Losses from fraud
which are absorbed to equity capital of the bank impairs the bank’s financial health and
constraints its ability to extend loans and advances for profitable operations. In extreme cases
rampant and large incidents of fraud could lead to a bank’s failure.
3. Increased Operating Cost
Fraud can increase the operating cost of a bank because of the added cost of installing the
necessary machinery for its prevention, detection and protection of assets. Moreover, devoting
valuable time to safeguarding its asset from fraudulent men distracts management. Overall, this
unproductive diversion of resources always reduces outputs and low profits which in turn could
retard the growth of the bank.

4. Low Asset Quality
It also leads to a diminishing effect on the asset quality of banks. The problem is more dangerous
when compounded by insider loan abuses. Indeed, the first generation of liquidated banks (Co-
operative Bank and Bank for Housing and Construction) by the Bank of Ghana was largely a
consequence of frauds perpetrated through insider loan abuses. If this problem is not adequately
handled, it could lead to distress and bank failure.
5. Reduced the amount of profit
Banking frauds reduce the profit of banks. Because of the frauds there is decrease in the profit of
the banks. If there is no frauds in banks so bank is able to give maximum return on the
investment of the customers. Fraud leads to loss of money, which belong to either the bank or
customers, so there is decrease in the profit margin of the company.
6. Unattended
There are instances of fraud that adversely impact banks on a regular basis and go unnoticed or
unattended. All these cases of fraud result in sizeable monitory losses for the banks once they
go undetected.
7. Creditability
Fraud events raise questions around the credibility of the fraud deterrent processes and the
technological capabilities of the institution.

CHAPTER NO-7
BANK RULES REGARDING BANKING FRAUDS AND SCAMS
After receiving Xerox papers (which were actually forged by the offenders) of the property, the
bank passed the same on to the legal section. After scrutiny, the legal consultant told the bank
that the Xerox documents were `perfect' and to release loan after execution of sale deed. The
bank rules state that loan applications can be examined "even with Xerox copies of documents.
The alleged greediness of employees to give their salary slips and other documents on payment
of some money made the job of the cheats easier. The police opine that unless bankers evolve a
fool proof system, the offenders continue to take advantage of the lapses.
Though computer based banking crimes are yet limited but it is increasing with a huge pace.
Their investigation is highly intricate and daunting. Prevention is the best alternative. It is
comparatively easier, though even with the best laws, efficient investigation team the successful
conclusion of most cybercrimes will remain a remote possibility .Therefore emphasis is more on
prevention. In bank administration, one feels that not much attention is paid to preventive
measures. Bank managements must direct their orientation towards preventive rather than
detective or punitive measures. Preventive vigilance must be the prime agenda to bring down the
occurrence of fraud in banks.

CHAPTER NO-8
ROLE OF BANKERS IN A BANK FRAUD
Bank frauds crop up in all spheres of banking dealing, like: Cheque frauds, Deposit account
frauds, Purchased bill frauds, Hypothecation frauds, Loan frauds etc. A dishonest banker can play
havoc with the banks money. The bank has therefore to sentinel itself and its customer against the
deceitful employee. The vicinity of business of the banker is extensive. The following operational
avenues have been noticed time and again. Manipulation of cash by those handling cash,
misappropriation of customer deposit accounts, misappropriation of money in telegraphic
transfers, clearing forged cheques and other instruments, fraudulently while working in clearing
departments, creaming of the sundry accounts, tinkering with the central accounts, accepting
counterfeit currency for a consideration, helping the bank robber, by giving information etc. An
analysis of frauds reported by banks to RBI broadly indicated that frauds perpetrated on banks
could be classified into the following categories:-
1· Misappropriation of cash tendered by the banks constituents and misappropriations of cash

remittance.
2· Withdrawal from deposit accounts through forged documents/instruments.
3· Fraudulent encashment of negotiable instruments by opening an account in fake/fictitious
name.
4· Perpetration of frauds through clearing transactions.
5. Mutualisation/overstepping of lending/discretionary powers, non-observance of

prescribed norms/ procedures in credit dispensation etc.
6. Opening/Issue of Letters of Credit, Banks Guarantees Co-acceptance of bills without

proper authority and consideration.
CHAPTER NO-9
REGULATIONS RESERVE BANK OF INDIA (RBI)
Reserve Bank of India (RBI) rules to prevent Bank frauds
The Reserve Bank of India (RBI) has drawn up new rules for banks aimed at preventing fraud
and irregularities which is given as follows:
The regulator has asked banks to immediately frame staff rotation and mandatory leave policies
for employees in sensitive areas such as treasury and for relationship managers handling high-
value clients.
Staff rotations and leave are international practices that help banks keep track of decisions and
businesses handled by a particular employee.
Reserve Bank of India has introduced the rules following forensic studies at certain banks due to
the “occurrence of large value frauds or sharp increase in number of frauds at such banks”.
In another notification, RBI directed private and foreign banks to appoint chief of internal
vigilance (CIV) officers, with responsibilities similar to those of chief vigilance officers in public
sector banks.
It was observed that the practices vary widely among banks. It has, therefore, been decided to lay
down detailed guidelines for private sector and foreign banks on similar lines so that all issues
arising out of lapses in the functioning of the private sector and foreign banks, especially relating
to corruption, malpractices, frauds, etc.,can be addressed uniformly by the banks for timely and
appropriate action.”
Banks need to implement an internal vigilance system by and submit a compliance report.
RBI’s directive on staff rotation and mandatory leave comes a few months after a multi cores
fraud involving a relationship manager at the
Gorgon branch of Citibank India came to light.
To prevent frauds, banks should have prescribed procedures and criteria to analyze and assess
irregularities, RBI said. Banks should be able to understand the nature of an irregularity or fraud.
For instance, whether it has taken place because of negligence in duty as a result of “collusion”
by employees.
“Any action taken in collusion to derive undue/unjust benefit or advantage should be termed as
fraud,” RBI said.
It has asked banks to examine the “intent to defraud, irrespective of whether or not actual loss
takes place.
If an irregularity is detected, banks should immediately assess if it was a result of human or
system failure.
This exercise is the first critical step towards corrective action in the sense that it would lead to
expeditious filing of police complaints, blocking/freezing of accounts and salvaging funds from
the blocked/frozen accounts in due course.
Banks asked to frame a “fit and proper” criteria for posting employees in critical positions such
as in dealing rooms and treasury, or as relationship managers for high-value customers and heads
of specialized branches.
RBI has allowed banks a free hand in appointing CIVs, but has fixed the initial tenure at a
maximum of six years.
CHAPTER NO-10
1. INTERNAL FACTORS
The institutional factors or causes are those that can be traced to the inhouse environment of an
banks. They are to a great extent factors within the control of the management of the bank.
Major institutional cause’s fraud can be categorized as follows:
1. Poor Management
This comes in a form of inadequate supervision. A junior staff with fraudulent tendencies that is not
adequately supervised would get the impression that the environment is safe for the perpetration of
fraud. Poor management would also manifest in ineffective policies and procedures, which a fraudulent
minded operator in the system will capitalize on. Even where there are effective policies and
procedures in place, fraud could still occur with sometimes deliberate skipping of these tested policies
and procedures.
2. Inexperienced Personnel
Inexperienced personnel are susceptible to committing unintentional fraud by falling for
numerous tricks of fraudsters. Inexperienced personnel are unlikely to notice any fraud attempts
and take necessary precautionary measures to checkmate the fraudster or set the detection
process in motion.
3. Overstretching
Overstretching is another reflection of poor management. This can aid perpetration of fraud to a
large extent. A staff who is overstretched is not likely to perform at optimum level of efficiency.
4. Job Rotation
Ordinarily, the longer a man stays on a job, the more proficient he is likely to be. An operator
who has spent so long on a particular job may be encouraged to think that no one else can
uncover his fraud. The existence of this kind of situation in a bank is clear evidence of poor
management and such situations encourage fraudulent practices.
5. Poor Book-keeping
Inability to maintain appropriate books of accounts together with failure to reconcile the various
accounts of the bank on daily, weekly or monthly basis more often than not will attract fraud.
This loophole can very easily be exploited by bank staff that is fraudulent. The prevalence of
fraud and forgeries are an indication of weakness in a bank’s internal control systems. Aside the
above-mentioned causes of fraud, the following factors greatly contribute to fraud:
Inadequate compensation, salaries and fringe benefits which are accruable to bank staff.
Refusal to comply with laid-down procedures without any penalty or sanction.
Conspiracy between interacting agents charged with the responsibility

of protecting the assets and other interest of the bank;
Poor working conditions;
Poverty and infidelity of employees.
6. Weak Accounting
The weak accounting is one of the important internal factor which causes to the banking frauds
and scams.
7. Poor Remuneration
Poor salaries and poor conditions of service can also cause and encourage fraud. Employees that
are poorly paid are often tempted to fraudulently convert some of the employers’ monies to their
own use in order to meet their personal and social needs. This temptation is even stronger on
bank employees who on daily basis have to deal with cash and near cash instruments. In our
society, it is argued that greed rather than poor working conditions or poor salaries is what lures
most people into fraudulent acts. This explains why fraud would still exist in the banking sector,
which is reputed to be one of the highest paying sectors. Some people have an insatiable
appetite to accumulate wealth and would therefore steal irrespective of how good their earnings
are.
8. Frustration
Frustration could also lead to fraud. Where a staff feels short-changed in terms of promotion
and other financial rewards, they become frustrated and such frustration could lead to fraud as
such employee would attempt to compensate himself in his own way.
9. Inadequate Training and Re-Training
Lack of adequate training and retraining of human resources both on the practical and
theoretical aspects of banking activities and operations more often than not leads to poor
performance. Such inefficient performance creates a loophole which can very easily be
exploited .
2. EXTERNAL FACTORS
Environmental factors are those that can be traced to the banks immediate and remote environment.
If the whole society of which the bank is a part is morally bankrupt it will be difficult if not
impossible to expect the banks to be insulated from the effects of such moral bankruptcy. The
banking industry is not immune from the going on in its external environment. Our present society
is morally bankrupt. Little or no premium is put on things like honesty, integrity and good character.
The society does not question the source of wealth. Any person who stumbles into wealth is
instantly recognized and honoured. It is a fact of our time that fraud has its root firmly entrenched in
the social setting where wealth is honoured without questions. Ours is a materialistic society which
to a large extent encourages fraud. The desire to be with the high and mighty calibre of the society,
extreme want that is often characterized by need, cultural demands or the cultivation of a life too
expensive for the legitimate income of the individual. Our societies have debased the entire old
moral standards and appear to be unconcerned with probity, honesty, integrity and “good name”.
The family friends, the religious houses and society at large seem not to care how you come about
your riches but accept, accommodate and even respect you for your wealth, however, dishonestly it
has been acquired. All these encourage fraud as the end seems to justify the means, and no means
seems to be morally unacceptable. With reference to fraud, criminal motivation is said to be
pathological when the state of mind of the criminal disposes and impels him to commit fraud even
though he is not in dire need of the resources. Bank frauds seriously endanger the organizational
growth of a bank as it leads to bank distress. This is because fraud reduces the deposits of depositors
and ultimately leads to the erosion of the capital base of banks. The cost of fraud is also usually
difficult to estimate because not all frauds are discovered or even reported since most banks have a
propensity to cover up the frauds emanating from their banks, all in a bid to continue to gain
customers goodwill and stimulate their clients’ confidence all the time.
1. Slow and Tortuous Legal Process
In Banks there is a slow legal process which is one of the reasons for occurring the frauds. If in
every bank there is a strong measures and fast legal process to deal with the frauds then chances
of will be less or minimize. So every bank there should be strong procedures to handling this
type of baking frauds.
2. Poverty
The reason for banking frauds is poverty. In India there is so much poverty so that people are
makes the frauds for removing there poverty because some peoples wants the all type of facilities
in their life and wants to improve their standard of living. So they started the illegal activities for
earning money. So poverty is also leads to banking frauds.
3. Widening Gap between the Rich and the Poor

In India there is so much gap between the rich and poor people. Because of money some peoples
are behaving different .In most of sectors there is a partiality between the rich and poor peoples.
So this gap is increasing by day –today and this leads to the banking frauds and scams.
4. Job Insecurity:
Nowadays job insecurity is one of the serious problems that leads to banking frauds. Permanent
jobs are very less. So for living the money is so much important. The needs and wants of the
people are increasing so money is become necessary to satisfied that needs and wants. Because
of the job insecurity some peoples want to reserve money that in future they can use. So for
satisfying the future needs and wants he is undertake the baking frauds.
5. Peer Group Pressure:

Another reason for happening the frauds is that there is peer group pressure in some of the
banks. So because of that people are doing this illegal activities which are very harmful to all
the society.
6. Increased financial burden on Individuals:

There is so much financial burden on each and every individual so because of that financial
burden people are stated to earning from doing the bank frauds.
7. Lack of Proper Training
There is lack of properly trained and experienced person. There is a sudden and tremendous
increase in banking business. The sudden expansive explosion has created a vacuum of
personnel. New recruits often do not have adequate training or experience before they are put in
responsible positions. The findings reveal that 68.77% of respondents have not undergone any
formal training in prevention of bank frauds.
8. Lack of Sufficient Staff

Moreover bank staff feels overburdened. The life has become too fast. The banker does not have
enough time to scrutinize documents thoroughly. About two thirds of the respondents feel that
they do not have sufficient staff to carry out the work meticulously. The overburdened staff was
given the highest weight age as the reason responsible for bank frauds
CHAPTER NO-11
TRIANGLE OF FRAUD
Classical Fraud Motivation Model

Banking Fraud is at present one of the most commonly perpetrated, but thoroughly undetected and
unreported crimes in Indian banking industry. Banking Fraud is broadly defined, but can be
considered to be any intentional deception that is characterized by a false representation of a
material point, which is then believed and acted upon by the victim, to their detriment. A speaker
at a business advisory conference recently outlined a set of the usual characteristics of a company
that may lead to fraud. Some of these included low morale, high turnover of staff, management
attitude, lowly skilled & trained staff, analytical anomalies, salary structures tied to profits and no
education on how to report fraud. He emphasized the point that awareness and education is the key
to defeating fraud.
As you can see, while it is a bit light in the pressure section, the speaker has common
characteristics leading to bank fraud. It is probably also include employee unwillingness to take
holidays as an opportunity, and low employee satisfaction as a rationalization, as common
characteristics. In regards to the point of awareness and education being key to defeating bank
fraud, It would say in a broad sense, this is correct. Employees and employers both need to be
aware of the prevalence of bank fraud, how bank fraud is commonly perpetrated, and how to
combat bank fraud. The systems of stopping bank fraud, how to recognize bank fraud and the
attitudes to convey for these fraud are imperative for employers to learn and implement. So, again,
of course education and awareness is key to defeating fraud, or at least minimizing it greatly, but
there is a lot more to it than simple education. So the triangle of the bank fraud is explained as
follows:
1. Opportunity
The executor of fraud must believe that he or she can commit the fraud without being caught (or if caught, nothing grave
will happen). The opportunity to commit fraud is possible when employees have access to assets and information that allow
them to both commit and conceal fraud. Opportunities are provided by a weak internal control environment, lack of
internal control procedures, failure to enforce internal controls and various other factors such as apathy, ignorance, lack of
punishment and inadequate infrastructure.
2. Rationalization
The third driver of fraud is ability of the perpetrators to find a way to rationalize their actions as acceptable.
Rationalization/Absence of guardians refers to the manner in which people think about their work, performance and
contribution within the workplace. They, therefore, attach a value that they should derive from the company for being
productive or delivering something of value. Absence of guardians, on the other hand, refers to the situation.
3. Pressure
Every fraud executor is confronted with some kind of pressure or “need”. Pressures that motivate individuals to commit fraud
are financial pressures (high medical bills or debts), vices (drugs, gambling, alcohol), work-related pressures (high pressure for
good results at work or a need to cover up someone’s poor performance, or to report results that are better than actual
performance compared to those of competitors) and other pressures (frustration with the nature of work, or even a challenge
to beat the system). This need‟ or greed usually has a combination of other factors such as the opportunity and the attitude to
commit the fraud.
CHAPTER NO-12
FRAUD DETECTION IN REAL-TIME FOR BANKS

Statutory requirements clearly show that bank fraud poses a serious threat to banks. While
retrospective fraud detection was top priority in the past, the focus is now on early detection or
prevention. Prevention measures aim at the early detection and handling of fraud risks to
prevent financial and reputational damage. There are offers bank an integrated anti-fraud
solution that not only detects bank fraud but assesses and thwarts transaction and process alerts
in real-time. Apart from the bank's database-founded risk analysis, the solution offers initial and
continual risk classification for new and existing customers and provides due diligence
functionality in the attached research system. The alerts generated by the system are based on
customer and transaction data, event patterns and correlations, and on custom user settings. The
imbedded real-time module grants minimal response times with high decision quality and aims
at fraudulent activities with a high damage potential. Clear-structured dashboards visualize
cases of bank fraud, suspicious activities reports, and detected alerts.
Some solutions offer:
• Coverage of all statutory requirements

• Real-time analysis of data and events to trigger alerts
• Simulation options (what–if analyses)
• Multi-clients and multi-lingual user interfaces
• Standard modules and flexible adjustment options
• Best-practice check scenarios from a large number of customer installations
• Easy integration with banking systems through standardized and flexible interfaces.
CHAPTER NO-13
ACTIONS TAKEN BY BANK TO MINIMIZE THE BANK FRAUDS
1. Assess fraud implication of banks Strategy
The fraud function has an opportunity to transform its role and status by thinking and acting
more like a stakeholder in the business. This involves assessing the risk factors and their relative
volatility, adopting a more commercial and customer-focused approach and using technology
innovation to provide customer-centric solutions. Understanding the risks will enable capability
or knowledge gaps to be identified and mitigating actions to be taken. Our research has found
that the innovation agenda is central to banks strategic growth plans and therefore will open up
new risks for banks in the areas of fraud management and IT security. Experience also shows
that business units in many organizations elect for point solutions. When this occurs, there is a
clear risk that a lack of coordination and integration will seriously undermine the effectiveness
and efficiency of enterprise-wide fraud management.
2. Model customer behaviours and situations
Fraud solutions and offerings should be developed and refined to address the risks of individual
customers or customer segments. Fraud interventions which impact the customers should be
based on individual customer behaviour and circumstance. This positions the fraud management
function as an insightful guide to the business, enabling the design and implementation of robust
fraud mitigation as part of the overall customer offering. For example, gaining a better
understanding of current and future customer demographics provides the opportunity to predict
future vulnerabilities thereby turning fraud management into a competitive advantage by
developing products and services that meet the needs of customers.
3. Develop Dynamic Analytical models
Our experience is that banks have historically deployed anti-fraud and anti- AML solutions
without the appropriate capabilities for dynamic optimization. Fraud management must be
highly responsive, as criminals are more sophisticated and increased processing power is
available through cloud technologies. Organizations that fail to maintain and optimize their
systems are likely to be targets for fraudsters. Typically, to optimize analytical models, banks
need to interact more closely both with internal and external analytical resources and with
software suppliers. Fraud teams need to be equipped with the skills and processes to manage.
4. Develop Pan-Channel Customer Authentications

Customer on-boarding and ongoing authentication policy are no longer the preserves of the
compliance function or of the individual channel owner. These are essential elements of the
customer’s experience and therefore key to business growth and customer retention. The fraud
management team, as trusted advisor, needs to work with the business to develop a panchannel,
customer-centric authentication strategy that provides consistency of customer experience and
reduced cost for deployment while managing risk. The authentication strategy will shape the IT
strategy, and the development of strategy should cover the following four key elements to
optimize the business value derived: first, define authentication; second, develop the
authentication solutions; third, mobilize the change, and fourth, communicate the strategy.
5. Develop the IT Strategy for Holistic Decision
The first step revising the IT strategy to incorporate Customer Authentication Strategy and
Analytical Capability Requirements is considered very important. Second, banks should
consider what changes would need to be made to effect decisions based on a holistic overview
of the many different aspects of a transaction, whether such aspects involve a customer, member
of staff, retailer, device or anything else.
CHAPTER NO-14
PRESENT NEW FRAUD PREVENTION CHALLENGES
1. Changing customer demographics

Populations are aging; creating a large group that has assets but is vulnerable to attack. Whilst
some financial crime committed against the elderly is committed by strangers, this group can
also be vulnerable to exploitation by relatives and caregivers. And 2.5 million of those people
were fraud victims. It is found that many victims are unlikely to tell anyone about it, and that
there is still a feeling of embarrassment related to being scammed. Only 8% went to the police,
9% got advice from organizations such as the Citizens Advice Bureau, and 72% did not tell
friends or family about it. The research also found that the most common type of scam people
fell for was online fraud, with 34% of scams occurring via the internet. As the numbers of
people using family or other caregivers to help them manage their finances rises, banks may
want to re-think their approach to how customers identify themselves as the customer’s “team”
will require access to funds in this environment. To do this successfully, Banks would have to
look at each customer as an individual and, by extension, look at each individual transaction
holistically.
2. Market expansion
Banks’ expansion into emerging markets is likely to continue as they represent circa 50 of GDP
and only 30% of the global consumer banking revenue pool. However, fraud management and
prevention techniques in emerging markets are not fully mature and a rush to expand into these
markets could lead to significant fraud losses. Know Your Customer
(KYC) data in emerging markets pose specific problems for banks seeking to limit fraud losses.
In addition, international cyber-criminals will be tempted to operate in markets where they feel
fraud controls are less sophisticated and local criminals may migrate to bank fraud From other
crimes. Rapid urbanization accelerates the trend toward increased fraud, putting Criminals in
closer proximity to each other and encouraging the sharing of information as Well as the
recruitment of allies and accomplices. Among the top 150 cities worldwide, 116 Are in
emerging markets. The volume of international payments traffic will also increase in Line with
growth in emerging markets, which makes it easier for perpetrators of fraud to Conceal their
activities. This creates the risk of volumes overwhelming existing (often Manual) fraud
controls. Large migrant communities may need transfer and payment systems To support the
flow of remittances to home countries. Indeed, remittances sent home from Migrant workers are
estimated to be three times the flow of aid sent from rich countries to Poorer countries. While
much of this money is used for immediate family needs, there is a Significant portion available
for savings and investment and banks have targeted this market With new products and
offerings.
CASE STUDIES
HARSHAD MEHTA SCAM
FRAME OF THE SCAM: -

The name Harshad .M. Mehta was in the focus of public attention in the year 1992 with a
number of financial crimes charged on him. Harshad Mehta was an Indian Stock broker who
was purported for a huge stock deployed scheme bankrolled by insignificant bank receipts,
which his company negotiated in ready forward transactions between banks. There were nearly
27 criminal charges filed against him.
Harshad Mehta born in 1954 grew up in Raipur and worked in the New India Assurance
Company. But in the year 1980 he quit his job only to join the stockbroker P. Ambalal who was
affiliated to the BSE. Later in 1981 Mehta worked as a sub broker for stockbrokers J.L. Shah
and NandalalSheth. Once he gained enough experience Mehta along with his brother Sudhir
came up with a new project in the name of Grow More Research and Asset Management
Company Limited. Later Mehta’s company seeked for the financial support of J.L. Shah and
NandalalSheth when BSE offered for a sale of broker’s card. Another name which was in the
conversation of Harshad Mehta scam was Nimesh Shah who played a very safe game and
however he is supposed to be a heavy player in the Indian stock market.
HARSHAD MEHTA AND STOCK EXCHANGE: -

Soon Harshad Mehta started buying shares in heavy numbers and soon his name became very
well known in the Indian Stock market. The problem actually started when Mehta started
buying the shares of Associated Cement Company (ACC) and increased the price of the shares
from Rs.200 to Rs. 9000 (approx.) which according to the stock markets norm was a rise of
about nearly 4400% rise in its price. Harshad Mehta was able to convince the reason behind the
high level bidding as for the replacement cost theory which defines that the old companies can
be marked or valued only based on the amount of money which is required to produce another
similar company in par. This is called as the replacement cost theory. Mehta’s firm also acted as
a broker for what is generally assumed or believed to be as collateralized bank receipts which
was not actually collateralized.
These bank receipts were thus used in hot-term bank-to-bank lending, known as “ready
forward” transactions. Soon people started calling him as the “Big Bull” as he paved way for the
Big Bull run of the Stock Market. But the actual fact was Harshad Mehta used the advantages of
the many loopholes in the banking system and evacuated off funds from inter-bank transactions.
127
DETAILED REPORT: -
As he was doing this he also apart from the ACC shares bought various other industrial shares at a
heavy premium which led the sensex to rise subsequently. However this strategy of Harshad Mehta
didn’t hold good for a long time and was soon exposed so the banks started to demand their money
back. This obviously led the sensex to dive back at the same rate at which it reached its peak. As a
result of this there were lot charge sheets filed against him of nearly 72 criminal offences and 600
civil actions. Thus the scandal of Harshad Mehta came into public. Harshad Mehta was declared to
be guilty of the criminal offence by the verdict of the Bombay High Court and Supreme Court of
India for his part in a financial scandal valued at INR 4999 crores (US$830 million) which took
place in the Bombay Stock Exchange (BSE).This in a way helped the Bombay Stock Exchange and
SEBI to bring about new rules which helped to cover the ambiguity or the inadequacy in the law.
INVESTIGATION: -
This was very clearly explained by the veteran writer Sucheta Dalal in Times of India of how the
scam got its shape by the ready forward (RF) deal. The RF is a fortified loan given from one bank to
another for a very short period of time. In the normal case the bank lends against government
securities where the bank which is borrowing gives away the securities to the lending bank at a very
higher rate and get back the securities at the end loan period. In a ready forward deal the broker acts
as a mediator to bring both the banks together and they get a commission for it and by no chance
they handle either the cash or the securities. But this was not the curtain raiser in Mehta’s case
where his firm used the same RF deal and channelized money through the banks successfully. In
Mehta’s case both the securities and the money was transferred through the brokers where they
acted as an intermediary who received the securities from the seller and handed them over to the
buyer and he received the check from the buyer and subsequently made the payment to the seller.
128
UNDERTAKING THE TRANSACTION ON BEHALF OF A BANK:

-
In this case the Mehta firm was very clever enough even in not enabling the buyer and the seller to
know each other’s identity. This was beautifully handled by the brokers as they were already the
market makers and they were behaving to be undertaking the transactions on behalf of a bank to
sustain a semblance of validity. Whereas Mehta used another tool which is the bank receipt (BR)
which was given by the seller to the buyer establishing the sale of securities and a solemn promise
to give the securities to the buyer. Thus in due course the securities are held in the seller’s trust by
the buyer. Harshad Mehta used this method where he located two banks namely the Bank of Karad
(BOK), Mumbai and the Metropolitan Cooperative Bank (MCB) who were ready to give counterfeit
bank receipts without any government securities. Using these fake bank receipts Mehta was able to
borrow money from other banks thinking that they were lending it against government securities.
Mehta used the money thus got in this way to elevate the prices of the share in stock market. The
shares were then sold for significant profits and the BR retired when it was time to return the money
to the bank
129
SITUATION CAUSING TO FUNCTION A HUGE INCREASE IN THE

PRICES OF STOCK:
Harshad Mehta used this technique of exercising unscrupulous control over the situation causing to
function a huge increase in the prices of stock. However many banks soon realized that they were
holding fake BR’s which was of no use at all but however by then Mehta was smart enough to scam
the banks an amount of nearly Rs 4,000 crores. Once this scam was brought into light and taken to
the Parliament, Harshad Mehta was immediately taken to prison. But however when this scam was
exposed the chairman of Vijaya Bank committed suicide feeling culpable of having given lot of
cheques to Mehta thereby holding responsible to the public money. Thus Mehta was charged with
72 criminal offences and more than 600 civil action suits against him and was arrested on these
grounds on November 9th in 1992. His brothers were also arrested along with Mehta. The arrest
warrant was issued based on the grounds of misappropriating more than 2.8 million shares (2.8
million) of about 90 companies, including ACC and Hindalco, through forged share transfer forms.
AFTER NINE YEARS OF DEATH OF HARSHAD MEHTA: -
But however it was the majority who won and he was put behind bars in the Thane prison. But on
31st of December 2001 Mehta passed away as a result of heart ailment in the Thane civil hospital. It
was only after a period of nine years of Harshad Mehta’s death that the Public Sector banks (PSBs)
and the Income tax departments have regained a remarkable and noteworthy amount of their hold
after the process of liquidating Mehta’s assets from the security scam. Harshad Mehta’s properties
and assets were attached to repay the scam amount and thereby making payment of about Rs1,
995.66-crore to the I-T department and Rs 199.25-crore to the State Bank of India (SBI). This
happened nearly after nine years of death of Harshad Mehta. The total principal amount of SBI
which was about Rs 1,000-crore have been largely settled by Mehta’s group.
.
130
CHAPTER NO-15
CONCLUSION
Bank frauds are done to make money by cheating the banks. There are several loopholes in banking
system that has been used by fraudsters. The number of bank frauds has been increasing year on
year along with that, RBI also engaged in making the banking system accurate and secure. IT in
banking sector is much more advanced than the traditional banking. Online transactions are widely
used than the manual transactions. Due to the frauds the profit of the company is getting affected.
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned
or held by a financial institution, or to obtain money from depositors by fraudulently posing as a
bank or other financial institution. Bank frauds concern all citizens. It has become a big business
today. Bank frauds are the creation of professional criminals, desperate customers or of errant
bankers or their collusion inter se. However the prima donna in the drama is the insider or the
banker. He opens the purse. He is often the target and at times the tool. Occasionally, he is the
victim of the temptations. There are internal factors and external factors which are responsible for
banking frauds and scams. There are two categories of banking frauds i.e. banking frauds done
insiders and frauds done outsiders. There are some effects of these frauds on banks like public loss
confidence in banks, loss of bank money, it helps to increase the operating cost of banks, low asset
quality, reduced the amount of profit, creditability etc. But there are also bank rules to prevent the
banking frauds and scams. The Reserve Bank of India (RBI) has drawn up new rules for banks
aimed at preventing frauds and irregularities. Banks take actions to minimize these bank frauds.
There are always new challenges in banking sector but they are competent to deals with that
challenge.
131
BIBLIOGRAPHY
http://www.manupatrafast.com/articles/PopOpenArticle.aspx?
http://www.slideshare.net/akshayvirkar/frauds-scams-in-banks
https://www.anz.com/personal/ways-bank/security/onlinesecurity/threats-banking-safety/fraud-
types/
http://in.ask.com/wiki/Bank_fraud?
lang=enhttp://www.ehow.com/about_6396210_online-bankingfraud_.htmlhttp://
www.wisegeek.com/what-is-bank-fraud.htm
132
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1. Name *
1. Occupation *
2. Annual income
3. Name of your bank *
4. Do you think that your bank caters (satisfy) all your banking needs? *
Yes
No

133
5. What kind of account do you maintain in this bank? *
Current A/c
Saving A/c
Loan A/c
Demat A/c
Other:
6. For the past how many years are you using the bank services? *
7. Which of the following facilities is given more importance in your bank? *
ATM facility
Loan facility
Overdraft facility
Other:
8. Does your bank have core banking facility to the customer? *
Mark only one oval.
Yes
No

134
Maybe
9. When you think of your bank, what comes first in your mind? *
Personalized service
Customer service
Wide branch network Computerized
banking Computerized Banking
Others:
_______________________________
10. Do they charge unnecessarily for not maintaining minimum balance in your account? *
Yes
No
11. Do you think your bank offers competitive interest

rate? *
Yes
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12. Do you use the service of alternative bank? *
Mark only one oval.
Yes No
13. What do you feel about overall service quality of your bank? *

135
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1

AN ANALYTICAL STUDY OF KOKAN MERCANTILE BANK LTD

KOKAN MERCANTILE BANK LTD

SAYYED SHIFA ARIF

M.COM PART II SEM 3 2023-24

PROF. YUSUF FAROOQUI & PROF. SAMEER NAIK

AKBAR PEERBHOY COLLEGE OF COMMERCE

M/S SHAUKAT ALI ROAD,

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

MISS. SAYYED SHIFA ARIF of M.COM Part 2 Semester III has

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

Project Course External Principal

AKBAR PEERBHOY COLLEGE OF COMMERCE & ECONOMICS

M/S SHAUKAT ALI ROAD, DO TAAKI,

GRANT ROAD MUMBAI-08

I, SAYYED SHIFA ARIF student of Anjuman-I-Islam’s Akbar Peerbhoy College

The information submitted is true and original to the best of my knowledge.

Signature of the Student

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

Chapter No. Name of the concept Page No.

Objectives Of The Study 7

II Review Of Literature 11-14

III Research Methodology 15-35

IV Types Of banking Frauds 36-42

V Computer Depredations 43-44

VI Effect Of Frauds On Banks 45-46

VII Banks Rules Regarding Banking Fraud And 47

VIII Role Of Bankers In Bank Fraud 48

IX Regulation Of RBI 49-50

X Internal Factors 51-53

XI External Factors 54-56

XII Triangle Of Fraud 57-58

XIII Fraud Detection In Real Time For Banks 59

XIV Actions Taken By Banks To Minimize The 60-61

XV Present New Fraud Prevention Challenges 62-68

XVIII Questionnaire 71-74

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

OBJECTIVES OF THE STUDY

• To understand the meaning of banking frauds.

• To understand the various types of banking frauds.

• To ascertain the factors which encourages the fraudulent activities in banks.

• To determine the effects of banking frauds on the society.

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

MEANING OF BANK FRAUD

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

2.1. Major Studies on Banking in India and Their Findings:

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

Type and Nature of Study:

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

FRAUDS DONE BY INSIDERS

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

SAYYED SHIFA ARIF ROLL NO:-24 2023-24

Wire fraud on internet