UNIVERSITY OF MUMBAI

RAYAT SHIKSHAN SANSTHA’S

KARMAVEER BHAURAO PATIL COLLEGE
VASHI, NAVI MUMBAI

PROJECT REPORT
ON
STUDY ON HOME LOAN IN INDIAN BANKING INDUSTRY

SUBMITTED BY
YOGESH SHARAD SAWANT

PROJECT GUIDE
ARCHANA SALUNKHE

IN PARTIAL FULFILLMENT FOR THE

COURSE OF BACHELOR OF
BANKING & INSURANCE (BBI)

T.Y.B.B.I. (SEMESTER V)
ACADEMIC YEAR 2017-18

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 ACKNOWLEDGEMENT

I ___________ would take this opportunity to thank the University of Mumbai for providing
me an opportunity to study on a project on Banking. This has been a huge learning
experience for me.
With great pleasure I take this opportunity to acknowledge people who have made this
project work possible.
First of all I would sincerely like to express my gratitude towards my project guide Prof.
ARCHANA SALUNKHE for having shown so much flexibility, guidance as well as
supporting me in all possible ways whenever I need help. I am thankful for the motivation
provided by my project guide throughout and helped me to understand the topic in a very
effective and easy manner.
I would like to thank Principal ___________ the coordinator of the course __________ and
Head of Department Prof. ________ of the BBI (BANKING & INSURANCE) for the
indirect support throughout.
I would also like to thank, other teaching faculties of the college, my colleagues, library staff
and other people for providing their help as per requirement to complete this project.
I acknowledge my indebtedness and express my great appreciation to all people behind this
work.

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 DECLARATION

I ____________ student of KARMAVEER BHAURAO PATIL COLLEGE studying in BBI

(Semester V) hereby declare that I have completed this project report on “_________” And
has not been submitted to any other University or Institute for the award of any degree,
diploma, etc. The information is submitted to me is true and original to the best of my
knowledge.

Date : _____________
_________________________________
(Name & Sign of
student)
Place – Vashi, Navi Mumbai.

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 RAYAT SHIKSHAN SANSTHA’S
KARMAVEER BHAURAO PATIL COLLEGE
VASHI, NAVI MUMBAI 400 703

CERTIFICATE

This is to certify that _______, student of BBI Semester V has completed his project on
“_________” and has submitted a satisfactory report under the guidance of ________
in the partial fulfillment of BBI course of University of Mumbai in the academic year 2017-
18.

___________________ _________________
_________________
Project guide Coordinator
Principal

__________________
University Examiner

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CHA NO. TOPIC PGNO.
01 INTRODUCTION OF THE STUDY

1.1 INTRODUCTION OF BANK FRAUDS

1.2 OBJECTIVE OF STUDY

1.3 SCOPE OF STUDY

1.4 RESEARCH AND METHODOLOGY

02 CONCEPTUAL FREAMWORK

2.1 DEFINITION OF FRAUDS

2.2 BANK FRAUDS

2.3 BANK MACHANICS FRAUDS

2.4 FRAUDS – PREVENTION AND DETECTION

03 SECURITES IN BANKING SYSTEM

3.1 SECURITY IN BANKING SYSTEM

3.2 PHYSICAL SECURITY MEASURES CONCEPT

3.3 A SURVEY OF FRAUDS

04 DATA ANALYSIS

4.1 CASE STUDY

4.2 SOURCE TIMES OF INDIA

4.3 UTI BANK PHISHING FRUAD

05 CONCLUTION & BIBIOLOGY

5.1 CONCLUTION

5.2 BIBLOGRAPHY

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CHAPTER NO. 1
INTRODUCTION OF
STUDY

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 1.1 Introduction:

EVOLUTION OF BANKING SYSTEM IN INDIA:

Banking system occupies an important place in a nation’s economy. A banking

institution is indispensable in a modern society. It plays a pivotal role in economic
development of a country and forms the core of the money market in an advanced country.

Banking industry in India has traversed a long way to assume its present stature. It
has undergone a major structural transformation after the nationalization of 14 major
commercial banks in 1969 and 5 more on 15 April 1980.

Banks are the engines that drive the operations in the financial sector, which is vital
for the economy. With the nationalization of banks in 1969, they also have emerged as
engines for social change. After Independence, the banks have passed through three stages.
They have moved from the character based lending to ideology based lending to today
competitiveness based lending in the context of India's economic liberalization policies and
the process of linking with the global economy.

A sound banking system should possess three basic characteristics to protect

depositor’s interest and public faith. Theses are

(i) a fraud free culture,

(ii) a time tested Best Practice Code, and

(iii) an in house immediate grievance remedial system. All these

conditions are their missing or extremely weak in India.

Section 5(b) of the Banking Regulation Act, 1949 defines banking as “Banking
is the accepting for the purpose of lending or investment, deposits of money from the purpose
of lending or investment, deposits of money from the public, repayable on demand or
otherwise and withdraw able by cheque, draft, order or otherwise.”

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 In the present day, Global Scenario Banking System has acquired new dimensions.
Banking did spread in India. Today, the banking system has entered into competitive markets
in areas covering resource mobilization, human resource development, customer services and
credit management as well.

With the rising banking business, frauds in banks are also increasing and the
fraudsters are becoming more and more sophisticated and ingenious. In a bid to keep pace
with the changing times, the banking sector has diversified its business manifold.
Replacement of the philosophy of class banking with mass banking in the post-
nationalization period has thrown a lot of challenges to the management on reconciling the
social responsibility with economic viability.

The banking system in our country has been taking care of all segments of our socio-
economic set up. A bank fraud is a deliberate act of omission or commission by any person
carried out in the course of banking transactions or in the books of accounts, resulting in
wrongful gain to any person for a temporary period or otherwise, with or without any
monetary loss to the bank.

1.2 Objective of study

The objective of this study was three fold.
 To study Indian banking and financial system along with current processes and
regulation in place.
 To identify issues in the current system and reasons for these .
 To examine the risk exposure of banks.

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 1.3 Scope of the study:
1. The research would highlight the comparative position of a sample
commercial bank with respect to ICICI Bank - the first Indian
Universal Bank, which would help the concerned banks to know
where it stands with respect to Universal Bank.
2. The research would enumerate the financial health and risk exposure
of sample commercial banks in terms of the CAMEL Model. This
be helpful to understand the relative strength and risk exposure
of Indian commercial banks.
3. The research would also point out the perception of Bank Managers
on Universal banking concept and at the same time would also bring
to light the perception of customers of banks regarding the awareness
and demand of various services presently offered by the banks.
4. The research can be used as a base for Post-doctoral research work.

1.4 Research and Methodology

The research methodology is data collection through

 Secondary Sources
Secondary Sources:
It was collected from internet sources. The secondary data was collected on the basis
of organizational file, office record, news paper, magazines, management books, preserved
information in the company’s database and website of the company.

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SOURCES:- Data collection through books, magazines, websites, journals, etc.

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CHAPTER NO.2
CONCEPTUAL
FRAMWORK

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2.1 Definition of Fraud:

Fraud is defined as “any behavior by which one person intends to gain a dishonest advantage
over another”. In other words , fraud is an act or omission which is intended to cause
wrongful gain to one person and wrongful loss to the other, either by way of concealment of
facts or otherwise.

Fraud is defined u/s 421 of the Indian Penal Code and u/s 17 of the Indian Contract Act. Thus
essential elements of frauds are:

1. There must be a representation and assertion;

2. It must relate to a fact;
3. It must be with the knowledge that it is false or without belief in its truth; and
4. It must induce another to act upon the assertion in question or to do or not to do
certain act.

A false representation of a matter of fact — whether by words or by conduct, by false

or misleading allegations, or by concealment of what should have been disclosed — that
deceives and is intended to deceive another so that the individual will act upon it to her or his
legal injury.

In law, the deliberate misrepresentation of fact for the purpose of depriving someone
of a valuable possession or legal right. Any omission or concealment that is injurious to
another or that allows a person to take unconscionable advantage of another may constitute
criminal fraud. The most common type of fraud is the obtaining of property by giving a
check for which there is insufficient funds in the signer's account. Another is the assumption
of someone else's or a fictitious identity with the intent to deceive. Also important are mail
and wire fraud (fraud committed by use of the postal service or electronic devices, such as
telephones or computers). A tort action based on fraud is sometimes referred to as an action
of deceit.

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2.2 Bank Frauds:

Losses sustained by banks as a result of frauds exceed the losses due to robbery, dacoit,
burglary and theft-all put together. Unauthorized credit facilities are extended for illegal
gratification such as case credit allowed against pledge of goods, hypothecation of goods
against bills or against book debts. Common modus operandi are, pledging of spurious
goods, inletting the value of goods, hypothecating goods to more than one bank, fraudulent
removal of goods with the knowledge and connivance of in negligence of bank staff,
pledging of goods belonging to a third party.

While the operations of the bank have become increasingly significant, there is also an
occupation hazard. There is a Tamil proverb, which says that a man who collects honey will
always be tempted to lick his fingers. Banks are all the time dealing with money and the
temptation should therefore is very high. Oscar Wilde said that the thief was an artist and the
policeman was only a critic. There are many people who are unscrupulous and are able to
perpetrate a fraud. We must be able to see that we devise our systems and procedures in such
a way that the scope for such clever and unscrupulous people is reduced.

Frauds in deposit accounts take place by opening of bogus accounts, forging signatures of
introducers and collecting through such accounts stolen or forged cheques or bank drafts.
Frauds are also committed in the area of granting overdraft facility in the current accounts of
customers. A large number of frauds have been committed through bank draft, mail transfers
and telegraphic transfers.

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An analysis made of cases brings out broadly the under mentioned four major elements
responsible for the commission of frauds in banks.

1. Active involvement of the staff-both supervisor and clerical either independent of

external elements or in connivance with outsiders.
2. Failure on the part of the bank staff to follow meticulously laid down instructions and
guidelines.

3. External elements perpetuating frauds on banks by forgeries or manipulations of

cheques, drafts and other instruments.

4. There has been a growing collusion between business, top banks executives, civil
servants and politicians in power to defraud the banks, by getting the rules bent,
regulations flouted and banking norms thrown to the winds.

2.3 Bank Mechanics Frauds:

By Insiders:

1. Wire Fraud

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.

2. Traders Rogue

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 A rogue trader is a highly placed insider nominally authorised 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 dollars; there have even been cases in
which a bank goes out of business due to market investment losses.

3. Fraudulent loans

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.

4. 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.

5. 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, the "Chase Trust Bank" of Washington D.C. appeared

15
 in 2002 with no licence and no affiliation to its seemingly apparent namesake; the real
Chase Manhattan Bank is based in New York.

There is a very high risk of fraud when dealing with unknown or uninsured
institutions.

The risk is greatest when dealing with offshore or Internet banks (as this allows
selection of countries with lax banking regulations), but not by any means limited to
these institutions.

6. Demand draft fraud

Demand draft fraud is usually done by one or more dishonest bank employees. 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.

By others:

7. 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 Rs.10000 into Rs.100,000, 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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8. 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 chequebooks are also of value to forgers who then
sign as if they were the depositor

9. 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.

Accounting fraud has also been used to conceal other theft taking place within a
company.

10.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 of 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 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

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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 no-one to pay the bills issued by the bank.

11.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 Rs.1000 in one bank, write a cheque on that amount and deposit it to your
account in another bank; you now have Rs2000 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.

12.Payment 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.

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 They are:
i) Genuine cards are manipulated
ii) Genuine cards are altered
iii) Counterfeit cards are created
iv) Fraudulent telemarketing is done with credit cards.
v) 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.

i) 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.

ii) 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. The use
of a four digit Personal Identity Number (PIN) instead of a signature helps to prevent this
type of fraud.

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 iii) 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.

13.Empty ATM envelope deposits:

A criminal overdraft can result due to the account holder making a worthless or
misrepresented deposit at an automated teller machine in order to obtain more cash than
present in the account or to prevent a check from being returned due to non-sufficient
funds. The crime could also be perpetrated against another person's account in an
"account takeover" or with a counterfeit ATM card, or an account opened in another
person's name as part of an identity theft scam. This scenario may become a thing of the
past next decade due to the emergence of ATM deposit technology that scans currency
and checks without using an envelope.

14.Impersonation:

Impersonation has become an increasing problem; the scam operates by obtaining

information about an individual, 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-

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issued standard identification numbers such as "social security numbers" “PAN numbers”
are also valuable to the fraudster.

Information may be obtained from insiders (such as dishonest bank or government

employees), by fraudulent offers for employment or investments (in which the victim is
asked for a long list of personal information) or by sending forged bank or taxation
correspondence.

In some cases, a name is needed to impersonate a citizen while working as an

illegal immigrant but often the identity thieves are using the bogus identity documents in
the commission of other crimes or even to hide from prosecution for past crimes. The use
of a stolen identity for other frauds such as gaining access to bank accounts, credit cards,
loans and fraudulent social benefit or tax refund claims is not uncommon.

Unsurprisingly, the perpertators of such fraud 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 or the police come calling.

15. 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.

16. Prime bank fraud:

The "prime bank" operation which claims to offer an urgent, exclusive

opportunity to cash in on the best-kept secret in the banking industry, guaranteed deposits
in "prime banks", "constitutional banks", "bank notes and bank-issued debentures from
top 500 world banks", "bank guarantees and standby letters of credit" which generate
spectacular returns at no risk and are "endorsed by the World Bank" or various national

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governments and central bankers. However, these official-sounding phrases and more are
the hallmark of the so-called "prime bank" fraud; they may sound great on paper, but the
guaranteed offshore investment with the vague claims of an easy 100% monthly return
are all fictitious financial instruments intended to defraud individuals.

17. 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.

Phishing means sending an e-mail that falsely claims to be a particular enterprise

and asking for sensitive financial information. Phishing, thus, is an attempt to scam the
user into surrendering private information that will then be used by the scammer for his
own benefit.Phishing uses 'spoofed' e-mails and fraudulent Web sites that look very
similar to the real ones thus fooling the recipients into giving out their personal data.
Most phishing attacks ask for credit card numbers, account usernames and passwords.
According to statistics phishers are able to convince up to five per cent of the recipients
who respond to them.

18. 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 anti forgery device from
damage. More over these notes have security threads, water marks. But these things are

22
not known to the majority of the population. Forged currency notes are in full circulation
and it’s very difficult to catch hold of such forgers as once such notes are circulated it’s
very difficult to track its origin.

19. Computer Frauds:

Computerization has brought advantages of efficiency, speed and economy in all

spheres of life. It is a very powerful tool and provides opportunities of efficiency and
speed to everybody using it. Further, the vast increase in the memory (whether RAM or
storage) and processing speeds as well as availability of wide range of software,
particularly Internet and web-based applications i.e. connectivity, have made them
pervade all aspects of our lives. This has also brought large economy of scale particularly
in our economic environment and we are becoming more and more dependent on
computers and their networks for the services such systems deliver.

Frauds committed using computers vary from complex financial frauds where
large amounts are illegally transferred between accounts by sophisticated hackers, to the
simpler frauds where computer is only a tool that a criminal uses to commit a crime.

It also provides ample opportunities for their misuse particularly for economic or
financial gains. This is as computers networks can also be used to commit crimes from
geographically far places. Such computer frauds are known by various names such as
cyber crimes or e-crimes and we can describe them as an act involving computer
equipment, software or data that results in an unauthorized financial advantage.
Worldwide frauds in computerized environment cause losses running into very large
sums. Although in India, frauds committed so far have not revealed any extensive
manipulation of computer systems, it is no doubt a potentially high-risk area, which
should be addressed carefully and in timely manner. According to a recent survey,
companies in India have not addressed security issues appropriately.

1) Manipulation:

In an ideal situation, where information systems have all the necessary controls,
which are properly integrated with other manual controls and maintained, there will
generally be no cause of worry. It is however, not so. Not only, most system controls are
not perfect, people also try to manipulate systems for variety of motives from games

23
playing, ego peer pressure, and hatred for the organization, emotional maladjustment,
blackmail and economic gains. Such people could be insiders, outsiders as well as
vendors, competitors in fact any one.

Computer frauds gain their criticality as they are easy to commit, difficult to
detect and even harder to prove. The most important type of such frauds is committing
the fraud by manipulation of input, output or throughput of a computer system.

a) Input Manipulation:

In input manipulation, input data such as deposit amounts in ledgers, limits in

accounts or face value of cheques are changed.

b) Output manipulation:

Output manipulation is achieved by affecting the output of the system, such as use
of stolen or falsified cards in ATM machines.

c) Throughput manipulation:

Throughput manipulation could be by rounding off sums credited to different

accounts and siphoning of the rounded digits to another account. No system is foolproof
and fraudulent transfers can occur in even highly automated and secure funds transfer
systems.

2) Unauthorized use:

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 Other types of such frauds or crimes could be unauthorized access to computers
by hacking into systems or stealing passwords, deliberate damage caused to computer
data or programs, computer forgery (changing of data or images stored in computers) and
un-authorized reproduction / modification of computer programs.

3) Awareness:

Other important causes of such frauds are lack of employee awareness, poor
implementation of security policies and segregation of duties, vendor products with weak
security controls, outsourced service providers and hackers (many as young as school
students). Computer frauds in such cases are generally for economic benefit to the
fraudster and corresponding loss to the organization

2.4 Frauds- Prevention and Detection:

A close study of any fraud in bank reveals many common basic features. There may
have been negligence or dishonesty at some stage, on part of one or more of the bank
employees. One of them may have colluded with the borrower. The bank official may have
been putting up with the borrower’s sharp practices for a personal gain. The proper care
which was expected of the staff, as custodians of banks interest may not have been taken. The
bank’s rules and procedures laid down in the Manual instructions and the circulars may not
have been observed or may have been deliberately ignored.

Components of Fraud:

There are two important components in any fraud committed by an employee of a

bank, himself or in collusion with a burrower. They are, firstly, the intention which is
subjective; and secondly, the opportunity which is objective. Conditions must be created in
the bank that the person who intends perpetrating a fraud does not get the opportunity to
commit it.

In India, the design, management and regulation of electronically-based payments

system are becoming the focus of policy deliberations. The imperatives of developing an
effective, efficient and speedy payment and settlement systems are getting sharper with
introduction of new instruments such as credit cards, telebanking, ATMs, retail Electronic

25
Funds Transfer (EFT) and Electronic Clearing Services (ECS). We are moving towards smart
cards, credit and financial Electronic Data Interchange (EDI) for straight through processing.

We are basically concerned about computer frauds committed by an unauthorized

user (whether insider or outsider) to the computer networks, which aims at causing economic
or financial gains to the user by this act or an economic or financial loss to the information
system (i.e. hardware, software and data) owner.

26
 Prevention of frauds:

i) Internal Prevention:

It is said that failures are the stepping stone for success. What this means is that if we
are able to analyse why a particular failure by way of a fraud took place, we can then detect
the loopholes in our system which led to the fraud and take corrective measures or change the
system. For instance the great Harshad Mehta scam took place because among other things,
the public debt office of the Reserve Bank of India was not computerised and was operating
on a manual system. This gave a float of fifteen days, which gave opportunity for people like
Ketan Parekh to perpetrate the fraud. Even after this scam while in the case of the RBI the
defect was rectified the overall banking system is still manual. Only 5000 out of the 65000
branches of banks are computerised. In today's competitive market, it is necessary that the
banks are able to service their clients effectively. Therefore strongly urge is that we should
have a massive effort at computerisation of the banks.

Execution of Documents:

1. A bank officer must adopt a strict professional approach in the execution of

documents. The ink and the pen used for the execution must be maintained uniformly.
2. Bank documents should not be typed on a typewriter for execution. These should be
invariably handwritten for execution.

3. The execution should always be done in the presence of the officer responsible for
obtain them,

4. The borrowers should be asked to sign in full signatures in same style throughout the
documents.

5. Unless there is a specific requirement in the document, it should not be got attested
or witnessed as such attestation may change the character of the instruments and the
documents may subject to stamp duty.

6. The paper on which the bank documents are made should be pilfer proof. It should be
unique and available to the banks only.

27
 7. The printing of the bank documents should have highly artistic intricate and complex
graphics.

8. The documents executed between Banker and Borrowers must be kept in safe
custody,

One issue when a fraud is perpetrated is who should be held responsible. For instance in the
case of the borrower-based accounts, there is the person who posts the accounts, there is the
person who passes the instrument and, there is a third person who makes the payment. It has
been suggested that there must be a method of isolating the person who makes the payment
from the people who make the posting or pass the order. The relative responsibility of the
three will have to be fixed. This is an issue that has been raised before me by one of the
Chairman of the banks. Perhaps in a programme like this we will be able to go into such
issues and evolve guidelines about what should be done so that while the innocent is not
punished, the guilty are not spared.

Another issue, which is of importance to the Indian economy. This is the reported fear of
many officers, especially in the middle levels in the banks, to take decisions regarding
dispersal of funds. As a result, there is always a tendency to push the case upwards and the
whole banking system is operating in a sub-optimal manner. We must be able to find a
solution to this. In fact, the whole vigilance function can become an effective function for
economic growth if we are able to create an environment in which the honest are encouraged
to take the decision and the dishonest are punished quickly.

Bank frauds are the failure of the banker. It does not mean that the external frauds do not
defraud banks. But if the banker is upright and knows his job, the task of defrauder will
become extremely difficult, if not possible.

ii) External Prevention:

In the banking and financial sectors, the introduction of electronic technology for
transactions, settlement of accounts, book–keeping and all other related functions is now an

28
imperative. Increasingly, whether we like it or not, all banking transactions are going to be
electronic. The thrust is on commercially important centers, which account for 65 percent of
banking business in terms of value. There are now a large number of fully computerized
branches across the country.

a) Appropriate controls:

The first steps in prevention of frauds in computerized systems involve setting up of proper
access controls both physical and logical. The physical protection of Information System
assets means physical control of access to computer and network systems and the devices to
which they are connected. Access to these systems could be controlled by security guards,
installation of code locks, smart card driven door opening devices or modern biometric
devices (which control the access on the basis of certain individual characteristics such as
finger-prints, eyes retina image etc., which cannot be changed or falsified).

However, in a computerized environment, logical access controls (i.e. controls to operating

systems, data-base systems as well as application systems) play more important role.
Adequate controls over system software and data is done by keeping a strict control over
functional division of labor between all classes of employees, keeping in mind the principle
of least privilege and that maker and checker. A clear segmentation of access to system
engineers, programmers and administrators is also done depending on their work
responsibility. Information System Auditors / Security Management must exercise a great
deal of creativity in identifying ways in which unauthorized users could gain access.

Hence, the first step in prevention of computer frauds is setting up of the appropriate
controls.

b) Proper Implementation;

29
Second step in prevention of frauds would be to ensure that the users properly implement the
control systems. Control measures could be either software driven like passwords or system
driven like exception reports and transaction authorization processes. In this connection, it
may be noted that access controls are a system in themselves and existence of such controls
means existence and maintenance of such control systems.

In the case of passwords, as access control measures. It may be noted that merely having
passwords is not sufficient. It should also be ensured that password have been prescribed to
have certain minimum characters, are stored in encrypted files, there is a forced change of
passwords at the time of first login as well as after a specified period. These features however
depend on the security policy of the organization.

Systems are also designed to keep a chronological record of the events occurring in the
system (i.e. commands executed by the users, actions on files, messages displayed by the
system, resources consumption by the users, transaction entry and security violations) in the
form of audit trails. These can be built in operating systems, database management systems
as well as application software. A regular analysis of audit trails as control measure helps in
containing any future loss through fraud.

However, although having good controls and maintaining them is a major step in prevention
of frauds it is still not sufficient to prevent them. Even with the best of systems and their
maintenance, all the possibilities of their misuse can neither be predicted nor tested. Even
when the best of the access controls tools are used and monitored, when data flows from
within the network through data communication lines or from one network to another or
through Internet, protection of the data becomes an important tool for prevention of frauds.
For this, one can either depend on simple processes like check sum or hash totals built in the
software or may require using encryption technology or cryptography. The complexity and
cost of implementation of these methods varies a lot and is, hence, decided by the risk
element.

Examples:

30
1) When data relating to inter-branch reconciliation flows through network simple processes
like check sum or hash totals may suffice. However, in the case of INFINET used for Real
Time Gross Settlement, which uses dial-up connections, leased lines as well as VSAT
technology for access, use of Public Key Infrastructure (PKI) with a larger key-size is
necessitated.

2) Firewalls for computer networks are another important tool in prevention of frauds when
access is allowed across networks or Internet. They are used to enforce an access control
policy across the networks. They allow only authorized traffic to pass and prevent
unauthorized access. They also protect sensitive data and provide audit or logging
information. As such they provide a focal point for monitoring and log access to the network
and thus limit exposure of network services.

3) Present technology also makes us available what is called as Intruder Detection Systems
(IDS). IDS are systems build up to detect intruders entering the network. It is the process of
identifying and responding to malicious activity targeted at computing and networking
resources and is an important component of defensive measures protecting computer system
and networks from abuses. There are different kinds of IDS:

i) Network Intrusion Detection Systems (NIDS) monitor packets on the network and attempt
to discover if a hacker is trying to break into a system.

ii) System Integrity Verifiers (SIV) monitors system files to detect when an intruder changes
them and send alert.

iii) Log File Monitor (LFM) monitors log files generated by network and look for patterns in
the log files that suggest an intruder is attacking. Once the hacker gets into the network it
triggers an alarm at the same time.

As firewall acts like a fence around the network, it cannot on its own detect somebody trying
to break in. It restricts access at the designated points. IDS, on the other hand, are intended to
recognize attacks against the network that firewall are unable to see. 80% of all the financial

31
losses are due to hacking that come from inside the network. Firewall cannot see anything
happening inside the network. Firewall checks for traffic which passes between internal
network and the Internet. Adding IDS will double-check miss-configured firewalls; catch
attempts that fail; catch insider hacking; record electronic evidence.

Detection of Frauds:

i) Internal detection:

Despite all care and vigilance there may still be some frauds, though their number,
periodicity and intensity may be considerably reduced. The following procedure would be
very helpful if taken into consideration:

1. All relevant data-papers, documents etc. Should be promptly collected. Original

vouchers or other papers forming the basis of the investigation should be kept under
lock and key.
2. All persons in the bank who may be knowing something about the time, place a
modus operandi of the fraud should be examined and their statements should be
recorded.

3. The probable order of events should thereafter be reconstructed by the officer, in his
own mind.

4. It is advisable to keep the central office informed about the fraud and further
developments in regard thereto.

One method of detection will be only by regular checks and this is where apparently there is
slackness today. Ultimately we must be able to create in our banks an atmosphere of trust on

32
the one side and transparency on the other so that frauds if they occur are immediately
detected, checked and penalized.

Apart from the systems and procedures, ultimately the whole issue boils down to the values
we have. Today we are highly tolerant of corruption. We also have in our Hindu philosophy
the two basic principles, which seem to indirectly encourage corruption. These are extreme
tolerance and the prayaschitta principle. As a result many people who commit frauds can
literally get away freely. Our systems are really to be blamed. As it is seen, if we make a
quick analysis of 100 people in any given organisation, 10% may be honest and 10%
dishonest whatever we do. 80% depend on the systems we have.

And our systems encourage corruption due to the following factors:

 Scarcity of goods and services

 Lack of transparency
 Delay and red tape
 Cushions of safety that have been built for the corrupt on the healthy principle that
everybody is innocent till proved guilty. We have got voluminous vigilance manuals
and the corrupt can find always some method of escaping punishment by exploiting
some loophole or other. This must be checked.

Do not know to what extent the bank frauds can be attributed to the people in our own
banking system that, because of loyalty of the profession or organisation, tends to protect the
corrupt. Such people may be doing a disservice to the nation. We should therefore be able to
evolve ultimately systems which tackle the corruption promoting factors mentioned above so
that the punishment of the corrupt becomes a perceived reality and acts as a check for people
who have a tendency to commit frauds. After all that is the way for prevention and detection
of frauds.

ii) External detection:

Despite all such measures, as technology is taking rapid strides (for fraudsters as well as
organizations), system security administrators are discovering that they have to constantly
improve upon the technological tools. However, security can only reduce the possibility of

33
fraud and not totally rule it out. In a computerized environment, the perpetrators of fraud also
expect their crime to be near impossible to detect among the thousands or millions of
transactions processed by the organization. Hence to reduce the losses, timely detection of
the frauds plays an important role.

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.

It is difficult to investigate for the following reasons:

•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.

•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 a 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

•No-scene crime:

The computer satellite computer link can be placed or located any where. 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.

34
•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.

As the success of the fraudster depends on how fast their crime is detected among very large
number of transactions processed by the organization, auditors and fraud investigators find
that computers are their best tools for detection of fraud. Powerful, interactive software that
quickly sifts through mountains of electronic data enables auditors to effectively detect and
prevent fraud throughout an organization. The benefit is speed.

One such tool is the General Audit Software (like ACL - Audit Command Language and
IDEA - Interactive Data Extraction & Analysis). Such tools can quickly compare and analyze
data to identify patterns and trends that often reveal fraudulent activity.

For effectively detecting and preventing fraud, one must be able to recognize fraud and its
symptoms. Auditors have been trained to look for anomalies and a data analysis tool can
highlight anomalies quickly. However, while gathering evidence for fraud, one will have to
be little creative and examine closely any indication of fraud, however, small. In other words,
to uncover a fraud, one must think like a thief and not as an auditor.

35
In fact, as such crimes can be committed by comparatively with much less investment and
gains to fraudsters may be beyond geographic boundaries. Another way to use such software
for prevention of fraud could be identifying organizations risks and exposures and
assembling fraud profiles for targeted audits.

One should not forget that, in a computerized environment, frauds increase, as fraudsters
believe their action near impossible to detect, if detected near impossible to prove, if proved
nearly impossible to convict and if convicted, amounts nearly impossible to recover. The
problem is compounded in networked banks operating in different nations with different
laws. Despite this, it has been observed that frauds perpetrated from across the globe have
been detected and amounts recovered by proper combination of technology and sleuthing
skills. Hence, while security administrators continually watch incidences and plug the holes,
fraud investigators improve their skills and actively liaise with authorities to improve the
legal framework.

36
37
 Chapter no. 3
Security in
banking system

38
3.1 SECURITY IN BANKING SYSTEM:

Security implies sense of safety and of freedom from danger or anxiety. When a banker takes
a collateral security, say in the form of gold or a title deed, against the money lent by him, he
has a sense of safety and of freedom from anxiety about the possible non-payment of the loan
by the borrower. These should be communicated to all strata of the organization through
appropriate means. Before staff managers should analyze current practices. Security
procedure should be stated explicitly and agreed upon by each user in the specific
environment. Such practices ensure information security and enhance availability. Bank
security is essentially a defense against unforced attacks by thieves, dacoits and burglars.

3.2 PHYSICAL SECURITY MEASURES-CONCEPT:

A large part of banks security depends on social security measures. Physical security
measures can be defined as those specific and special protective or defensive measures
adopted to deter, detect, delay, defend and defeat or to perform any one or more of these
functions against culpable acts, both covert and acclamations natural events. The protectiveZ
or defensive, measures adopted involve construction, installation and deployment of
structures, equipment and persons respectively.

The following are few guidelines to check malpractices:

1. To rotate the cash work within the staff.

2. One person should not continue on the same seat for more than two months.

3. Daybook should not be written by the Cashier where another person is available to
the job.

4. No cash withdrawal should be allowed within passbook in case of withdrawal by pay

order.

39
 5. The branch manager should ensure that all staff members have recorder their
presence in the attendance registrar, before starting work.

CHANGES IN LEGISLATIONS AFTER ELECTRONIC TRANSACTIONS:

1. Section 91 of IPC shall be amended to include electronic documents also.

2. Section 92 of Indian Evidence Act, 1872 shall be amended to include commuter
based communications.

3. Section 93 of Bankers Book Evidence Act, 1891 has been amended to give legal
sanctity for books of account maintained in the electronic form by the banks.

4. Section 94 of the Reserve Bank of India Act, 1939 shall be amended to facilitate
electronic fund transfers between the financial institutions and the banks. A new
clause has been inserted in Section 58(2).

Customer guidelines to avoid Fraud:

The customer should keep in mind the following guidelines to prevent themselves from any
frauds.

 Never give your account number to people you do not know, especially on telephone.
 Never give out financial or other personal information such as bank account or credit
card numbers unless you are sure that the company is legitimate and the information
is necessary for the transaction.
 Never judge a website by its appearance. Anyone can create a flashy website. Just
because it looks professional does not mean it is run by a professional.
 Do not write your credit card number on the cheque.
 Don’t leave blank spaces on the payee and amount lines.
 Keep changing your e-mail password frequently because it can be hacked.

40
  Limit the amount of personal information on your cheque. For e.g. driver’s license,
telephone numbers. A criminal can use this information by applying for credit card or
loan, opening a new account.
 Don’t send any personal information to any e-mail ID this can lead phising.

Thus above are some the measures that the customer should undertake to avoid any type
of bank frauds.

Bank Frauds Statistics in India:

Year Loss in Fraud Cases

Rs.Crores
2002 399.53 Cr. 1744
2003 653.5 Cr 2207
2004 600.16 Cr. 2663

3.3 A survey On Frauds:

Highlights of the first annual survey published by India forensic Research Foundation. This
study was carried out in the period of August'2016 and February'2017. This is the first
independent and privately funded study carried out in India on the banking sector
frauds.400 participants contributed their valuable views on this subject.

 Total fraud loss to Indian Banks in year 2015- 16 was Rs. 1381 crores according
to the report published by Reserve Bank of India.

 Existence of the internal controls is still the methodology in India to catch the
frauds.

 Collusion of the borrowers and the employees is the biggest cause of the bank
frauds.

41
 At least Rs.690 crores worth of frauds are known to the banks but are not
reported to various authorities for reasons like unclear definition of word frauds,
damage to the bank’s image etc.

 Technology related frauds like (ATM Card, Debit card, Credit card) are expected
to be going un-exposed on the vast proportion.

 Estimated minimum loss to the banking industry because of the unknown frauds
could be more than Rs.828 crores.

 Total impact of frauds on banking revenues = 1.7% of the total consolidated

revenues of the banks are lost to frauds.

 Money laundering is considered to be the risk of frauds in future.

 Educating the bank employees is the most effective way to prevent the bank
frauds.

42
CHAPTER NO.4

DATA ANALYSIS

43
4.1 Case Studies

1) Supposed ATM Fraud

August 22, 2016

I did some snooping around the internet and found that even though this kind of ATM fraud
those occur there has been no indication that this is prevailant in India or Pune for a matter of
fact

Therefore the letter was either a warning from ICICI Bank to it's customers or an attempt by
someone to spread rumours or create a popular email forward. Since no such warning is
listed on the ICICI Bank website I would think it's the latter.

A team of organized criminals are installing equipment on legitimate bank ATM's in at least 2
regions to steal both the ATM card number and the PIN. The team sits nearby in a car
receiving the information transmitted wirelessly over weekends and evenings from
equipment they install on the front of the ATM.

If you see an attachment, do not use the ATM and report it, immediately to the bank using
the 800 number or phone on the front of the ATM.
The equipment used to capture your ATM card number and PIN are cleverly disguised to
look like normal ATM equipment. A "skimmer" is mounted to the front of the normal ATM
card slot that reads the ATM card number and transmits it to the criminals sitting in a nearby
car.
The thieves copy the cards and use the PIN numbers to withdraw thousands from many
accounts in a very short time directly from the bank ATM.

44
Equipment being installed on front of existing bank card slot.

The equipment as it appears installed over the normal ATM bank slot.

45
At the same time, a wireless camera is disguised to look like a leaflet holder and is mounted
in a position to view ATM PIN entries.
Suprisingly this happens only in Pune for some reason. Pune India's high tech crime capital.

4.2 SOURCE TIMES OF INDIA

Card crooks tap into data wires:

First, it was skimmers. Now, credit card crooks in Kolkata may be getting more tech savvy,
using wire-tapping gadgets to cash in on unsuspecting card users.
It's a new cause of worry for city police and CID. Wire-tapping is a complicated scheme and
much more difficult to track down. It's a technical maze that involves telephone wires,
receiving-terminals and a cable line parallel with telephone cables to copy the card details
when it is swiped for a transaction.
The first time that the city police got an inkling of fake credit card rackets in Kolkata was
when three Bangladeshis were arrested for using a card whose owner was in Singapore.
Wire-tapping is the most likely method, they now say. Though they have not identified a
racket as yet, cyber sleuths are sure the card racketeers are running a hi-tech operation in the
city. Their suspicions were strengthened when a private bank recently held a workshop for
CID to discuss fraud techniques.

46
"We haven't got any case where wire-tapping was used to dupe somebody but we are sure the
racketeers are out there. We are trying to find the right technique to detect such crimes and
also adopting safe-guard measures," said a senior CID officer.

Wiretapping works in three phases. The first phase involves tapping into the wires of the
main server to capture card data as it is processed for a legitimate transaction. The next step
is to transfer the encoded data to another server, at the fraudster's end, where it is decoded. In
the last phase, the data is used to produce counterfeit cards. The technology is definitely more
complicated than a skimmer - a gadget which copies the details of a card from a measured
distance. In advanced countries, encrypted cables are installed to prevent telephone wire
tapping but awareness is low in India.

"The cable linking the electronic data capturing machine (EDC) and the distribution point
box is a very sensitive area which is targeted by the racketeers. When the card is swiped on
the EDC, the machine records the financial data in the card's magnetic strip and feeds it to the
DP box, from where it moves to the main server of the telephone service provider and is
finally transferred to the servers of banks where the transaction is recorded. The hackers
target the area between the EDC and the DP box, tap into the wires, steal data and send it to
another server," said an anti-fraud officer of a private bank.

Police officers say it is difficult to trace such rackets. "For the first phase, the fraudsters need
only a map of the telephone wiring, a receiving terminal and cables matching the ones used
by the telephone service provider. These are not very difficult to manage and anybody who
has a flair for technology can use it to store the data. High-end technology comes in the next
level," said an officer.

Police suspect card fraudsters in Kolkata could be using the technology to copy the data and
send it to other cities in India and abroad. They have a good reason to suspect this. In the last
47
one year, such units have been busted in Delhi, Jaipur and Hyderabad. "We heard about it and
are looking for effective measures to prevent wire-tapping," said Jawed Shamim, deputy
commissioner, detective department. Kolkata Police could also take tips from south-east
Asian countries like Thailand and Philippines, where such rackets are active and where law
enforcement agencies have more experience in handling such crimes.

PNB Official involved in Bank Fraud of Rs. 2 Lakh

July 14, 2017

The cases of credit card frauds do not seem to end. Following the recent case of an ING
Vysya Bank employee, in partnership with others, duping the bank of crores, a case has been
registered against a Punjab National Bank (PNB) in Chandigarh. Baldev Singh, who works
as a cashier-cum-computer operator in the Kurali branch of PNB, has been remanded to
police custody because of duping the bank to an amount of Rs 2 lakh. According to the
investigating officer, Ravindar Pal Singh, the accused had first defrauded the bank of Rs 1.87
lakh; however, after he was caught, he duped 2 more customers to the tune of Rs 1.1 lakh to
clear the bank’s liability.

The case had come to the Kurali police when the head of PNB, Chandigarh Circle, had
lodged a complaint against Baldev on March 10. That day the bank had given Rs 8 lakh in
cash to Baldev Singh to disburse payments as cashier-cum-computer operator. However, he
had disbursed Rs 6, 12,700 but failed to deposit back the remaining amount of Rs 1, 87,300.

After the bank authorities had initiated an enquiry against the accused, he committed to the
crime and agreed to pay back the defrauded cash.

However, on March 15, he once again siphoned off Rs 1, 00,500 from the account of a
customer, Balveer Singh. Further enquiry also revealed that he had duped another customer,
Beant Singh, of Rs 10,000 as he withdrew Rs 15,000 from Beant’s account when the latter
had come to withdraw Rs 5,000.

48
4.3 UTI Bank: Phishing FraudS:

Recent fraudulent transactions through phishing resulted in loss of over Rs

20 lakh for a customers.
Friday, June 13, 2017

The Economic Offences Wing, Crime Branch, Delhi Police, received a complaint from the
vice president, Operations, UTI Bank that many customers of various UTI banks in Delhi,
Vishakapatnam, Thane, Nasik, and Ahmedabad received emails claiming to have originated
from the bank.

These emails included a hyperlink within the email itself, and a click on the link took the
recipients to a Web page, which was identical to UTI's Web page. Some unsuspecting
recipients responded to these mails, and gave their login information and passwords. Later
on, through Internet banking, a large number of fraudulent transactions took place. These
transactions resulted in loss of over Rs 20 lakh for customers with bank accounts in Delhi,
Vishakapatnam, Thane, Nasik, and Ahmedabad.

An analysis on those phishing mails revealed that they had originated from somewhere in
Lagos, Nigeria. The UTI phishing site had lifted the UTI logo as well as the Iconnect symbol
from the original UTI site in order to make the fake site look real. The fake site provided a
'click here' option, which in turn took victims to a fake customer verification site based in
Austria. IP addresses of the fraudulent transactions indicated transactions had been made
from Nigeria, Atlanta and California.

Investigations:

49
Upon a complaint of the vice president, UTI Bank, a case registered and taken up for
investigation by a special team. Investigations revealed that Sanjit Chowdhary, Account No
111010100023959 with UTI Bank, Noida, had received a disputed credit entry totaling Rs 1.3
lakh through Internet banking from the account of Lakshmi Narayan Sarkar of Kolkata, who
has an account at UTI Bank, Salt Lake, Kolkota, and from the account of Makaran H
Pundalik, who has an account with the Standard Chartered Bank, Delhi.

It was further revealed that the misappropriated funds had been transferred in the account of
accused Sanjit Chowdhary. The police team laid a trap at UTI Bank in Noida and the accused
Sanjit Chowdhary, who came to the branch to make enquiries regarding the inactive status of
his account, was arrested on December 7, 2006.On being interrogated, the accused disclosed
that he had received money in his bank account consequent to phishing mails sent to various
customers of UTI Bank. Various transaction slips pertaining to the UTI Bank and ICICI Bank
were recovered from his possession. A scrutiny of these slips revealed that Sanjit Chowdhary
had withdrawn funds and deposited the same in accounts of his other associates, who had
accounts in UTI and ICICI Bank at Mumbai and Trichy.

Till December 2006, a total of twenty complainants had registered their complaints. All the
six beneficiary accounts are in Delhi for these twenty complainants. Further, ten complaints
had been received by UTI branches in Vishakapatnam, Ahmedabad, Nasik, and Thane, where
the beneficiary accounts are being maintained. An analysis of the accounts of the four
arrested Nigerian nationals revealed that financial transactions worth over Rs 1 crore took
place in an eight-month period.

Relevant Measures to tackle Bank Frauds in India:

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.

Broad analyses of various frauds that have taken place throw up the following high-risk areas
in committing frauds:

 Misappropriation of cash by fudging accounts.

 Unauthorized withdrawal or transfers of funds, mostly from long dormant accounts.

50
  Opening of fictitious accounts to misappropriate funds from illegal activities i.e.
Laundering through the fictitious accounts
 Use of interbank clearing for accommodation, kite-flying and misappropriation.
 Cheating in foreign exchange transactions by flouting exchange control provisions.
 Withdrawal from deposit accounts through forged documents.

The most effective defence banks could have against fraud is to strengthen their operational
practices, procedures, controls and review systems so that all fraud-prone areas are fully
sanitized against internal or external breaches. However, the huge expansion in banking
transactions consequent to the transition of banks to mass banking and the large scale
computerization have played a major role in the perpetration of the frauds. Hence mere
reliance on the internal controls is of no use. The ten fold “INDIA FORENSIC” approach to
tackle the bank fraud will definitely play a crucial role in coming days.

Following is the procedure to tackle frauds in banks:

1) Expect fraud:

Nowhere in the world the fraud can be avoided hence the banks can be no exceptions. It
is a human tendency of taking the risk to commit the frauds if he finds suitable
opportunities. So it is wise to expect the occurrence of the fraud. If the fraud is expected,
efforts can be concentratessd on the areas, which are fraud prone. Fraud is the game of
two. The rule makers and rule breakers. Whoever is strong in the anticipation of the
situations wins the game of frauds. Fraud is a phenomenon, which cannot be eliminated,
but it needs to be managed.

2) Develop a fraud policy:

The policy should be written and distributed to all employees, Borrowers and depositors.
This gives a moral tension to the potential Fraudster. Maintain a zero tolerance for
violations. The Indian bank needs to roar against the action that is taken against the
Fraudsters. The media publicity against the fraudsters at all the levels is necessary. The
announcement by US president George W. Bush that the “Corporate crooks will not be
spared” gave the deep impact to the Corporate America. In India also we need to consider
it as a sever problem and need to fight against it.

3) Assess Risk:

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Look at the ways fraud can happen in the organization. It is very important to study the
trend and the style of frauds in the bank. Some of the big nationalized banks maintain the
databases of the fraud cases reported in their banks. But the databases are dumb. They
yield nothing unless they are analyzed effectively. Establish regular fraud-detection
procedures. It could be in the form of internal audit or it could also be in the form of
inspections. These procedures alone discourage employees from committing fraud. In
addition to this the Institute of Chartered Accountants of India has issued an “Accounting
and Assurance standard on internal controls which is a real guideline to test internal
controls. Controls break down because people affect them, and because circumstances
change.

4) Segregate duties in critical areas:

It is the absolutely basic principle of auditing a single person should not have the control
of the books of accounts and the physical asset. Because this is the scenario which tempts
the employee to commit the fraud. Hence it becomes essential to see that no one
employee should be able to initiate and complete a critical transaction without involving
someone else.

Most of the banks in India have the well-defined authorization procedures. The allocation
of the sanctioning limits is also observed in most of the cases. But still the bankers violate
the authorities very easily. They just need to collude with the outside parties. However the
detection of the collusions is possible in most of the cases if the higher authorities are
willing to dig the frauds.

5) Maintain the tone of Ethics at the top:

The subordinates have the tendency to follow their superiors. When the signals are
passed on to the middle management about the unethical behavior of the top management
the fear of punishment gets reduced and the tendency of following the superior
dominates. Fear vanishes when the tendency of “If I have to die I’ll take along the
superior and die” tendency rises.

6) Review and enforce password security:

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 The incidences of hacking and the Phishing have troubled the Indian Private Sector
banks to a great extent. In addition to this most of the Indian banks are running behind the
ATM and credit cards to compete with each other but have conveniently forgone the fact
that ATM cards and the credit cards are the best tools available in the hands of the
fraudsters. Inappropriate system access makes it possible to steal large amounts of money
very quickly and, in many cases, without detection. Hence the review and the
enforcement of the security policy are going to be a crucial.

7) Conduct pre-employment screening:

Since the raw material of the Banks is cash the banker needs to be more alert than any
other employer before they recruit. Only testing the aptitude of a person is not of any use.
Know whom you are hiring. More than 20 percent of resumes contain false statements.
Most employers will only confirm dates of employment. Some times post employment
condition might create the greed in the minds of employee, hence at least the bankers
should test check the characters of their subordinates by creating real life scenarios such
as offering the bribes by calling on some dummy borrower.

8) Screen and monitor Borrowers:

Bad borrowers cause the biggest losses to the banks. What are they? Who they represent
themselves to be? Look at their ownership, clients, references, and litigation history. In
many cases the potential fraudsters have history of defaulting in some other bank or
Financial Institution.

Though this is not the foolproof solution to the disease of the frauds to some extent it
helps to combat the frauds.

4.4 .Survey Report

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Findings:
According the survey conducted by me most of the customers know about bank frauds. They
have a computational idea of frauds taking place in banks.
There are very few, those are not aware of bank frauds.

The survey also revealed the types of bank frauds that the customers know about. The survey
included ATM Fraud, Credit card fraud and Online fraud.
The following is the graph revealed:

Due to computerization banks facilities have increased. There has been increase in frauds
also. The following Graph shows the survey on frauds increased or decreased due to
computerization.

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Following survey shows the number of customers those have experienced the frauds in banks
either through banks or by others.

The suggestions that the survey reveal is that there must be some strict actions take against
the fraudsters. Banks should provide the necessary information regarding the frauds that the
customers can come across. Awareness among the customers regarding frauds is must.

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56
CHAPTER NO.5
CONCLUTION
&
BIBLOGRAPHY

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5.1 Conclusion:

The Indian Banking Industry has undergone tremendous growth since nationalization of 14
banks in the year 1969. There has an almost eight times increase in the bank branches from
about 8000 during 1969 to mote than 60,000 belonging to 289 commercial banks, of which
66 banks are in private sector.

However, with the spread of banking and banks, frauds have been on a constant increase. It
could be a natural corollary to increase in the number of customers who are using banks these
days. In the year 2000 alone we have lost Rs 673 crores in as many as 3,072 number of fraud
cases. These are only reported figures. There were nearly 65,800 bank branches of a total of
295 commercial banks in India as on June 30, 2001 reporting a total of nearly 3,072 bank
fraud cases.

The most important feature of Bank frauds is that ordinarily they do not involve an individual
direct victim. They are punishable because they harm the whole society. It is clear that money
involved in Bank belongs to public.

There must be certain preventive and curative measures to control frauds. The higher
authority of bank must follow strict rules against such fraudsters. The various new
technologies must be adapted by the bank to overcome such frauds.

Thus, a fraud is the game of two, the rule makers and the rule breakers. Fraud is a
phenomenon that cannot be eliminated but can be managed.

For preventing fraud some of the bank are using new technologies and few of them are
as follows-

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ICICI Bank {SAFE BANKING}
We are committed to make your banking with us a safe and wonderful experience. The
guidelines we have set out are simple steps you can take to ensure that your money is safe
and secure. This initiative has been taken us in form of the “Safe Banking” campaign, which
has been running across media – Print, T.V., online, and outdoor.
While you may not have fallen prey to any of them, thankfully, its our responsibility to make
you aware of them so that you are alert of how to protect your money.

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60
PROTECT YOUR ACCOUNT:

IF you are using Internet Banking or any other online account, please read below on how to
protect your account.

 Never respond to e-mails that request personal information.

 Keep your password top secret and change them often.

 Make your password difficult to crack.

 Never use cyber café to asses your online accounts.

 Keep your computer secure.

 Check the website you’re visiting is secure.

 Validate SSL certificate.

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5.2 BIBLOGRAPHY
 www.google.co.in
 www.yahoo.com
 www.fraudsinindianbankingsector.com
 www.icicibank.com
 www.axisbank.com
 www.sbi.com
 www.wikipedia.com
 www.managementparadise.com

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