The digital boom in the economy created huge opportunities in the fintech space and disrupted the financial system as we know it but with the usual benefits of going digital, came with a whole bunch of caveats that are associated with going online. Co-founder Jabong and present MD of Pincap Praveen Sinha says, “Bank frauds are at an all-time high. As people look for new ways to earn money due to the liquidity crunch in the past few years, some resort to scamming and others looking for a quick buck become the victims. It is a vicious cycle and there is very little awareness out there to prevent bank frauds. We have rating agencies to check credit worthiness of companies but no entity working towards fraud detection. The mechanisms for reporting such frauds are also not upto the mark and many incidents never make it to the public domain.”

Examples of clever bank frauds

We spoke to a director of an investment company based in Delhi NCR recently, and they said “that recently a person disguised as a doctor got in touch with them via LinkedIn claiming that he works for a company working in vaccination for horses. He said that these vaccines are very rare and a source in India was offering these vaccines to them for 1/10th of the price. The offer was simple, the doctor wanted us to supply the vaccines to them at a 10% discount of the price they were paying and we could then split the huge profits 50-50. This was obviously a tempting business proposition and the doctor seemed well connected on LinkedIn and the phone number he provided was also verified on few calling apps. To further legitimize the deal, the doctor said the company which makes these vaccines will provide a bank guarantee to us when we provide the purchase order. Up to this point everything seemed credible. Then the doctor told us to order a sample set worth Rs. 1 lakh from the supplier so that a quality audit officer from his company could come and check the authenticity of the product. I instructed my team to not pay the supplier but at the same time informed the doctor that we have procured the samples. The next day, the doctor said that he spoke to the supplier and the supplier told him that they have received no payment from us. This gave away the fact that these entities were colluding and would have defrauded us of the sum being paid for the samples.”

In another instance, we had the collapse of the Punjab and Maharastra Cooperative Bank in September, 2019 where officials were found at fault for providing upto 70 percent of the bank’s capital as loan to real estate entity HDIL and then underreported the NPA. PMC bank consumers have a cap of 1,00,000 on withdrawals to this day and are still seeking justice in the court of law.

Phishing has become another attractive way for scammers to target people. Targeting consumers who are in the senior age categories, the scammers find dubious ways to extract credit card information or UPI details and almost immediately siphon off funds from the accounts. E-mails with intriguing headlines attached with malware are also sent to employees of financial institutions, which can hack into unprotected or poorly protected networks and retrieve sensitive data such as passwords and result in huge bank frauds.

Kanpur based professional anchor Mr. Shivam Shukla had no idea that installing Paytm and connecting it to FASTag in February would cause a considerable loss to him in the coming months. A few days later he started receiving KYC SMSs urging him to complete the process or else lose the funds he had in his Paytm wallet. There was a support number attached to this message, which Shukla called but did not get a response. However, the next day Shukla got a call from a person who introduced himself as a Paytm employee and gave him a set of instructions to complete the KYC process. Shukla was asked to download a screen sharing app, connect it to Paytm, share his 9-digit ID and wait. After this, Shukla was asked to add Rs. 10 to his wallet as a verification step. Thinking it was a harmless amount, he added the same to his wallet and within minutes a sum of 40,000 Rs. was stolen from his account. With the screen sharing application being active, the scammer got access to the UPI PIN and OTPs that were received on Shukla’s phone, giving him complete access to Shukla’s UPI account.

Impact of bank frauds on banking consumers

In the first half of 2020, the CBI has registered bank frauds worth 14,429 crores. In all 40 cases, the complainants have been the banks. This number comes after the system reported frauds of 71,543 crores in the previous financial year. A banking system which was anyway reeling from the high profile cases such as Nirav Modi and Vijay Mallya in the last few years, was given a fresh jolt with the poster boy of Indian Banking, Rana Kapoor also being found culpable to bank fraud in the Yes Bank Scam. Rana has been accused of sanctioning loans to companies with weak finances for healthy kickbacks and has been already booked by the Enforcement Directorate in this regard.

“Post demonetization, many new consumers have been forced to move over to organized banking as the authorities have decided to encourage people to keep their finances on record of the nation’s financial system. When you are asked to trust the system, deposit your money in a bank but one day get an abrupt notification that you cannot withdraw more than 50% of your funds or that your funds have been wiped out, the consumer feels betrayed or cheated by the banks. These bank frauds, though not always the fault of the banks, are breaking the confidence of the banking consumer in the industry”, opines Sinha.

How to prevent bank frauds

To ensure high profile companies don’t use their prevalent reputation to run off with mega bucks, the Reserve Bank of India introduced a LEI (Legal Entity Identifier) code which will prevent companies from seeking funds using the same collateral across different banks in the system. The banks will have to improve their due diligence and also keep regular tabs on companies who have taken loans from them. In the age of digital banking, investing in a state of the art cyber security programme is critical and the banks should invest time in creating awareness among its employees on safe browsing practices.

The consumers are at high risk of falling prey to phishing scams or call centre scams which would result in losing all their money. Banks have to keep track of new types of scams and create awareness among their clientele via SMS, direct calling and e-mails on a day to day basis. ATL campaigns can also boost awareness and help keep these scams in check. There is also the need for independent agencies which can audit companies not only for credit worthiness but also for fraud detection. Many banks continue to underreport NPAs over fear of scrutiny and consumers who have been duped don’t always get justice. A uniform platform for raising complaints and fast track redressals needs to be established.

Nabbing the scammer

There are thousands of different types of scams running today in the country and it is very hard to keep track of each as a consumer. The rule of the thumb is to never share banking information to any stranger or on suspicious websites. Always enable 2-Factor Authentication on online transactions to prevent fraudulent transactions from going through and reporting such transactions to the bank almost immediately if you are a victim.

Unless you are a VIP, very little help is on offer from the authorities or the banks once you have fallen prey to such scams particularly if you have voluntarily provided your details or taken part in the transactions. A cyber cop on the condition of anonymity revealed that as per the provisions of the IT Act, only a policeman with the ranking of an Inspector can investigate a case of cyber crime. And because of the sheer geographical size of our country and lack of jurisdiction in other districts, it is difficult for an inspector sitting in Delhi to arrest criminals operating out of some small town in Karnataka. He feels that a national level task force needs to be set up immediately to help coordination among departments and break such cases in a fast tracked manner.

In 2019, a British cyber vigilante going by the name Jim Browning hacked into the video camera system of a call center operating out of Gurgaon when they tried to scam him. He accesses many other critical information and puts the information out in the public to alert everyone of the scam and its founders. The government should incorporate ethical hackers into these task forces, given their ability to not only prevent but launch counter attacks on scammers.

“The end user’s confidence in the banking system remains shaky and many global call centre scams have been attributed or tracked back to India. This gives Indians across the globe a bad reputation and stakeholders shy away from conducting business with Indians due to the reputation. There is an urgent need for us to check these scams from doing further damage to the system and introduce measures to win back consumer confidence and repair the reputation of the system”, concludes Praveen Sinha Jabong Co-Founder.

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