Facing a rising volume of frauds on banks and involvement of their employees in a large number of cases, the country’s banking system has geared up to use IT-enabled forensic aud IT system to counter it.
While private players such as Axis Bank , HDFC Bank or ICICI Bank seem to be ahead in this endeavour , public sector banks are taking baby steps to analyse details of financial transactions to detect and prevent staff involvement in fraudulent activities.
“More and more banks are making attempts to use IT-enabled solutions for proactive data analysis. But use of IT in fraud detection is still in the nascent stage,” KPMG director (forensic) KV Karthik said.
Agreed Allahabad Bank chief vigilance officer Debashish Sarkar, “Banks are slowly gearing up to use information technology in detection of frauds. But there is long way to go.”
Bankers said despite advancement in IT, most frauds on banks are still being detected by way of internal audits, regulatory inspections, surprise visits by vigilance team and complain from public.
A survey by KPMG in January this year validated this. Nearly 50% of respondents to the survey said frauds were detected mainly by audits while 38% said these were also brought to notice by anonymous call or letters. About 21% respondents said they use IT as one of the means of fraud detection.
Given the use of newer methods by fraudsters — both by insiders and outsiders — the Reserve Bank of India too has shown its concerns and told banks in September last year to set up a separate division for fraud prevention and management function. “Fraud investigation requires competence in forensic audit and also technical and transactional expertise,” the RBI said.
Use of IT in data analysis certainly gives an edge to the management to identify financial misconduct but this is yet to be foolproof. Given the volume of transactions and its varieties, bankers admit that no system can locate every aberration in bank accounts. “Merely using IT solutions will not help. One needs to customise it and there should be company-specific anti-fraud programme,” said Mr Karthik.
“Banks often overlook aberrations in small-value transactions,” said an executive at a fraud management cell of a state-run bank who did not want to be identified. “There is a rising trend of frauds involving small amounts so that these do not get highlighted easily.”
Most banks set trigger points and system alerts for transactions above the limit. For instance, Indian Bank’s transaction analysis cell in the head office detects aberrations in transactions above Rs 50-lakh . It’s regional divisions detect dealings of Rs 1 lakh and above. Bank of Maharashtra set the trigger at Rs 50,000 at regional levels.
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