Banking Fraud – Prevention and Control
https://worldspaper.com/ Banking Fraud is posing threat to the Indian Economy. Its vibrant effect can be understood by the fact that in the year 2004 number of Cyber Crime were 347 in India which rose to 481 in 2005 showing an increase of 38.5% while I.P.C. category crime stood at 302 in 2005 including 186 cases of cyber fraud and 68 cases cyber forgery. Thus it becomes very important that the occurrence of such frauds should be minimized. More upsetting is the fact that such frauds are entering in Banking Sector as well.
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.
India’s banking system has several outstanding achievements to its credit, the most striking of which is its reach. In fact, Indian banks are now spread out into the remotest areas of our country. Indian banking, which was operating in a highly comfortable and protected environment till the beginning of the 1990s, has been pushed into the choppy waters of intense competition.
A sound banking system should possess three basic characteristics to protect depositors’ interests and public faith. These 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 missing or extremely weak in India. Section 5(b) of the Banking Regulation Act, 1949 defines banking… “Banking is 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 withdrawable by cheque, draft, order or otherwise.”
But if his money has fraudulently been drawn from the bank the latter is under strict obligation to pay the depositor. The bank, therefore, has to ensure at all times that the money of the depositors is not drawn fraudulently. The time has come when the security aspects of the banks have to be dealt with on a priority basis.
The banking system in our country has been taking care of all segments of our socio-economic setup. The Article contains a discussion on the rise of banking fraud and various methods that can be used to avoid such fraud. 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 a wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank.
The relevant provisions of the Indian Penal Code, Criminal Procedure Code, Indian Contract Act, and Negotiable Instruments Act relating to banking frauds have been cited in the present Article.
EVOLUTION OF THE BANKING SYSTEM IN INDIA
The banking system occupies an important place in a nation’s economy. A banking institution is indispensable in modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country.
The 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 6 more on 15 April 1980. The Indian banking system is unique and perhaps has no parallels in the banking history of any country in the world.
RESERVE BANK OF INDIA-ECONOMIC AND SOCIAL OBJECTIVE
The Reserve Bank of India has an important role to play in the maintenance of the exchange value of the rupee in view of the close interdependence of international trade and national economic growth and well-being. This aspect is of the wider responsibility of the central bank for the maintenance of economic and financial stability. For this the bank is entrusted with the custody and the management of the country’s international reserves; it acts also as the agent of the government in respect of India’s membership of the international monetary fund.
With economic development, the bank also performs a variety of developmental and promotional functions which in the past were registered as being outside the normal purview of central banking. It also acts as an important regulator.
BANK FRAUDS: CONCEPT AND DIMENSIONS
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 emerged as engines for social change. After Independence, the banks passed through three stages. They have moved from character-based lending to ideology-based lending to today’s competitiveness-based lending in the context of India’s economic liberalization policies and the process of linking with the global economy.
While the operations of the bank have become increasingly significant banking frauds in banks are also increasing and 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. And the old philosophy of class banking has been replaced by mass banking. The challenge in the management of social responsibility with economic viability has increased.