www.tjprc.org editor@tjprc.org REASONS OF BANKING FRAUD – A CASE OF INDIAN PUBLIC SECTOR BANKS SUKANYA KUNDU & NAGARAJA RAO School of Business, Alliance University, Bangalore, Karnataka, India ABSTRACT The number of bank frauds in India is substantial and it is increasing with the passage of time and technology. According to a survey by Ernest & Young, 2012 the banking segment witnessed around 84% of reported fraud cases within the financial services sector. The society expects accountability, fairness, transparency and effective intermediation from banks. Ensuring that they carry out their responsibilities with sincerity of purpose and devoid of fraud is an important ingredient for gaining public trust and goodwill. The study will cover the cases of frauds, map a typological trend strategy to be adopted as prevention and implementation strategies and present the same for implementation with ownership. The case is based on the primary data gathered from a nationalized bank in India. For security reason the name of the bank and the departments and personnel interviewed has been kept withheld. For rest of the paper the bank has been referred as ABC bank. Details of fraud incidents that have happened during the period 2007-2012 with ABC bank, the fraud type, fraud detection time persons who are associated with the identification of the fraud along with the fraud descriptions has been studied. On the basis of these primary data thrust areas for fraud management has been identified and finally, with IT as fulcrum, a model of fraud management for the Indian banks has been provided. Bank frauds occur due to ignorance, situational pressures and permissive attitudes. It is difficult to detect in time and even more difficult to book the offenders because of intricate and lengthy legal/judicial requirements and processes. In the fear of damaging the banks reputation often the fraud cases are not always brought to light. KEYWORDS: Fraud, Bank Reputation, Customer Goodwill, Time-To-Detect Fraud INTRODUCTION Banking industry in India has traversed a long path to assume its present stature. It has undergone a major structural transformation after the nationalization of 14 major commercial banks in 1969. During the last four decades of nationalization, there has been phenomenal expansion of branch network, particularly in the hitherto under-banked rural areas besides, a massive qualitative change in the operations of the banking system. However, the journey has not all along been even and smooth. “There have been hurdles and impediments, stresses and strains but the dynamic fashion in which the banking industry has taken them in strides and surged ahead only demonstrates its resilience and inherent potentialities as catalytic agent for social economic development” (Mr. M.N.Goipuria). Currently, India has 78 scheduled commercial banks (SCBs) - 29 public sector banks (that is with the Government of India holding a stake), 21 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 30 foreign banks. They have a combined network of over 64405 branches as on 31.03.2009 and more than 45,000 ATMs. According to a RBI report the public sector banks hold over 76 percent of total assets of the banking industry, with the private and foreign bank at 18% and 6% respectively. International Journal of Information Systems Management Research & Development (IJISMRD) ISSN (P): 2250-236X; ISSN (E): 2319-4480 Vol. 4, Issue 1, Jun 2014, 11-24 © TJPRC Pvt. Ltd.