Law relating to banking Fraud in India.

Law relating to banking Fraud in India:

Author: Geet Jain from a final year Law student from Indore Institute of Law


Fraud: Fraud is defined as any behavior by which individual goals for achievement of unscrupulous preference over another and illegitimate loss to the other and illegitimate causality to the other either by way of secretion of substantiality or otherwise. Fraud is defined under section 421 of the Indian Penal Code and Section 17 of the Indian Contract Act. Fraud considered as cheating, concealment, forgery-counterfeiting and breach of trust.

Bank Fraud: Bank fraud can be defined as a corrupt illegal act by an individual or configuration to illegitimate striving to possess or receive money from a bank or financial institution. Let’s take a look at several types of bank fraud which exist, pursue by how these types of activities can be blocked.

One of the greater responsibilities that a bank or financial association has to protect the exclusive right of the financial association by engaged hard to protect the commercial value that holds it. In order to do so, the bank or financial institution must be assured to address the issue of bank fraud.

E-Banking Fraud: Online Banking is also known as Net Banking, Internet Banking, E-banking, or Virtual Banking is an electronic payment system. It is one method of banking in which transactions are conducted electronically on a secure website operated by the institution over the internet. Internet banking provides you the benefit of time-saving, secured amount, Mobile recharge and online shopping.


Measurers from Prevent Internet Banking are:

  1. Direct Precautions
  • Use personal Computer and Mobile
  • Install Firewall and Antivirus
  • Always install from trusted store
  1. Browse Precautions
  • Google Chrome
  • Mozilla Firebox
  • Apple Safari
  1. Private Windows helps in tracking protection
  2. Use the Virtual Keyboard
  3. Type bank website address
  4. Make a payment on HTTP
  5. Never Save Password
  6. Get Logout
  7. Disable autoFill
  8. Scam Email( Beneficiary Added)
  9. Scam Email( Impersonation)
  10. Deliberate Compromise
  11. Card usage on unsecured websites
  12. Mishandling Login details etc.


Number of Bank Frauds occurs in today’s era are:

Bank frauds which effects number of banks financial status and trust towards society in providing loans and recovery of money, Bank frauds are Accounting fraud, demand draft fraud, remotely created check fraud, uninsured deposits, bill discounting fraud, duplication or skimming of card information, cheque kiting, forget or fraudulent documents, Forgery and altered cheques, Fraudulent loan application, fraudulent loans, empty ATM deposits, Fictitious Bank Inspectors, Identity theft or impersonation, Money Laundering, Payment Card Fraud, Booster Cheques, Stolen Payment cards, Phishing and Internet Frauds, Prime Bank fraud, Rogue Traders, Stolen Checks, Wire Transfer Frauds etc , generally these frauds occur in our country.

Reserve Bank of India introduced some guidelines for protection of this:

Different geographical areas were situated it is very difficult to check money laundering transactions, to solve this problem reserve bank of India introduced legal entity identifier, it checks and prevents banking fraud in India, Reserve bank of India has mandated a phase-wise implementation of Legal entity identification for all borrowers of banks in India. Legal Entity Identification is 20 digital global reference number which uniquely identifies foundation is the regulator of legal entity identification.

Advantages of Legal entity identifier are:        

  1. Identification of transaction in the whole country.
  2. Improves the accuracy and quality of financial data.
  3. Tracking transactions enable.
  4. Identify across pin.


Recent Banking frauds in India:

On 5 February 2018, Punjab National Bank, that it had been deducted unauthorized transactions of rupees 280.70 crores, at one of its Mumbai branches, the bank reported these incidents to central bureau investigation and conducted an internal investigation as well. In Just 10 days Punjab national bank a magnitude of the bank.

Nirav Modi fraud, Nirav Modi running a business of gems and jewelry, the case of fraud inflicts by 3 companies in this prescient have been analyzed, the companies inhabit a business of diamonds and jewelry, the companies have taken away credit facilities from bank under alliance arrangement led by one of the banks. Fraud is much bigger 11,400 crores precise, the bank has issued 200 unauthorized notes. It requires pre sanctioned credit limit and at least 100% cash margin with issuer bank.

Some Banks issued credit facilities on the basis of the letter of undertaking, letter of undertaking means promise taken by the local bank to foreign bank and other bank gives credit to a supplier who would supply amount, custom has long-distance relationship with the bank that sanctions amount on that basis.

Due to carelessness, Robert management system, control failure Punjab national bank suffers from risk mitigation factor, without bank knowledge letter of the undertaking being issued. Punjab National bank suspects employees at overseas branches of these banks also acted in connivance with its own employees, adequate checks not done by other banks before approving transactions.

Modus operandi of Nirav Modi Fraud:

The companies emphatically stretched the assessment of diamonds with the mollified animus to the usefulness of high credit facilities from the money mongers and also to indicate the security coverage available with money mongers. Gem and jewelry sector avails credit facilities to these companies increased their credit dispensation. There should have been some division related through limits on such type of credit exposure.

Jewelry sector units may also be asked to furnish a monthly declaration to its lenders’ bank declaring details of all transactions financial agreement contract entered into by its subsidiaries with their business associations.

Manufacturing Sector fraud: The cases of frauds perpetrated by 5 companies to carry out the functioning in assembling the pharmacy, textile, ferrous metals, pharmaceuticals products and various dimensions of steels products.

Modus operandi of Manufacturing Sector:

One of the company had exported the goods adjacent shipping bills and had discounted export bills on different dates, since bill was long outstanding, the lead bank requisite commissioner of custom duty to verify the foundation of these bills, mismatch was found in products mentioned in LC invoice documents and products mentioned as per books of company.

The companies had circumvented the banking system underhanded activities such as manipulated books of accounts, removal, deficiency, and disposing of deposit stocks without the bank observation.

Vijay Maliya Fraud: Vijay Maliya take 1500 crore from bank as a personal guarantee, meeting of 9000 crore loan with Kingfisher Airlines, Vijay Mallya read to do settlement by paying 6600 crores to bank but banks are not ready to accept it, Problems facing by Kingfisher companies facing problems of no strong management with Kingfisher airlines, in the airline industry it faces profit margin loss and government also provide fund to Air India.


Reserve Bank observed:

The latest commercial determination Report by Reserve Bank of India in June 2018 theorize that the banking system has proclaimed around 6,500 instances involving fraud of around Rs 30, 000 crores in the concluding fiscal. Several other banking frauds which were reported afterward have raised several questions about the ability of the Public Sector Banks to contain these situations.

The gross Net Profit Assessment ratio of anticipated commercial banks could rise to 12.2 percent by March 2019 from 11.6 percent in March 2018, as evoked by the Reserve Bank of India. Without an apprehension, a chronological progressive system which is transpicuous and highly adequate can lead to a commercial healthier banking system of the country.



According to my perspective, Banking companies prevent bank frauds through Automatic Card lost, Automatic Card Pin, preserve data from wrong websites, person preserve from unsafe suffering, CVV Number, Warning from free data and preserve it from unsafe suffering.

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