Banking has witnessed a significant surge in occupational fraud globally, establishing it as the most impacted industry. Similarly, the banking industry in India has also experienced a rise in fraudulent activities perpetrated by bank officials. This chapter aims to investigate five notable cases of high-value occupational fraud committed by top management personnel in Indian banks. Multiple contributing factors have been identified, including greed, social comparison, corrupt ideology, lack of ethics and morality, a sense of entitlement and ego, hubris, and a hyper-competitive culture. These factors played a pivotal role in enticing top management to exploit fraud opportunities and collaborate with other bank employees and corporate borrowers for personal gain. The prevalence of collusive fraud within the banking sector is an alarming trend that jeopardizes the industry's integrity, potentially foreshadowing its decline. The findings of this study establish a robust foundation for future empirical research and provide valuable insights to enrich the existing body of literature.
TopIntroduction
How did the sector with the highest regulations end up being the one most susceptible to occupational fraud1? According to the Association of Certified Fraud Examiners (ACFE), the financial and banking sectors are the biggest global victims of occupational fraud (ACFE, 2020a). Occupational fraud is the use of one’s line of work for personal benefit. The ACFE has broadly classified occupational fraud as asset misappropriation2, corruption3, and financial statement fraud4. Occupational fraud is a severe illness that may spread across the business via growing connivance. Once it starts, it will last for a very long period. Finding the source and beginning rhizome medication before it expands is the only way to stop it. It will grow and become worse when the cause is not identified. As per the special research of the “ACFE Report to the Nations in 2020 on Banking and Financial Services,” the loss and number of cases vary in different regions around the world; Sub-Saharan Africa had the highest median loss with ₹1.398 crore and followed by Asia-Pacific and the Middle East and North Africa, with losses of ₹1.234 crore. The average loss in Southern Asia (Afghanistan, Bangladesh, India, Nepal, Pakistan, and Sri Lanka) is ₹0.822 crore. The fragility of internal controls is the root cause of occupational fraud, and the weaknesses in internal controls include the ability to bypass already-in-place measures and a lack of management monitoring (ACFE, 2020a).
Although occupational fraud occurs more often in banks and other financial institutions, the median loss was less. The number of frauds perpetrated by owners and executives was less, but the damages were more significant. The statistics show that younger criminals with a median age of 35 caused less damage to the organisation than elderly perpetrators while considering the age of the offenders. When looking at fraud by gender, men committed 71 percent of the crimes, and their median loss was twice that of women offenders. The organisation might suffer greater damage from collusion5 among the culprits than fraud alone. When examining the criminals’ behavioural red flags6, it discovered that 87% of the offenders had one or more of the following characteristics: living above one’s means, money troubles, strong, unusual connections with customers, divorce or family issues, impatience, suspiciousness, or defensiveness (ACFE, 2020a).
As the custodian of public funds, the banks’ misuse of that money will have an impact on the whole financial system and the economy (Rafay, 2023). Occupational fraud is becoming more prevalent in the Indian banking industry, and it is high time to take decisive action to prevent the problem from worsening and damaging the whole financial system. Recently, the Indian banking industry has witnessed an increase in corporate advance fraud, which has been exacerbated by collusion between corporate borrowers and bank executives. There are two distinct forms of high-value fraud that are evident in banking in India: 1) fraud perpetrated by corporate borrowers; and 2) fraud conducted by senior management. The fraud instances involving the Industrial Credit and Investment Corporation of India (ICICI) Bank, Yes Bank, Punjab National Bank (PNB), Industrial Development Bank of India (IDBI) Bank, and Punjab & Maharashtra Co-operative Bank Limited (PMC) Bank are suitable examples of high-value occupational frauds. Despite a surge in fraud committed by corporate borrowers, this was the first time in the history of the Indian banking industry to witness a failure of the tone at the top in the private, public and Co-operative banks in a short interval. The five significant cases in the field of behavioural forensics are discussed in this chapter. Although each instance has a unique stimulus, the opportunity to perpetrate fraud has been found as the common denominator.