New tech makes fraud detection hard

MUMBAI: While incidents of frauds in the banking sector are rising, new technology and digital channels coupled with limited oversight by line managers, lack of tools to identify potential red flags and business pressure to meet targets are making fraud detection difficult.

According to the third edition of the Deloitte India Fraud survey, about 84 per cent of the respondents pointed to a substantial rise in fraud incidents and identified fraudulent documentation, cyber crime, overvaluation or non-existence of collateral, and siphoning or diversion of funds as the top four types of frauds experienced by them.

The survey revealed that a majority of respondents have put in place a strong Fraud risk management (FRM) policy on paper with a focus on elements like strategy, reporting structure, fraud investigative cell, whistleblower hotline, employee background check and customer screening.

However, what seems to be missing is the use of technology tools, intelligence gathering, conducting regular fraud risk assessments, fraud awareness training and workshops, vendor due diligence and social network analysis, it noted.

Though 32 per cent of the respondents said they are using artificial intelligence (AI) applications to detect fraudulent behaviour or suspicious patterns to red flag, the shortage of skilled talent, limited understanding of this technology and data security of AI applications are some of the key challenges to be addressed.

In the area of stressed assets, over half of the respondents said suspected shell companies and lapses in the due diligence process during loan disbursement have inadvertently led to higher stressed assets.

Incomplete data and lack of coordination between consortiums of banks in sharing vital data is another major issue while managing stressed assets.

“Responses received to our survey suggest that the monitoring and remediation efforts are significantly hampered due to insufficient and quality of data,” Deloitte added.