GS Paper III

News excerpt

The RBI report, titled ‘Trend and Progress of Banking in India 2022-23’, highlights the escalating threat of fraud and data breaches and improvement in asset quality in the banking sector.

Findings of the report:

Rise in fraud Cases:

• The report emphasizes a significant increase in fraud cases within the banking sector during the first half of the financial year 2022-23.
• As many as 14,483 frauds involving an amount of ₹2,642 crore were reported in the first half of the current financial year, as compared to 5,396 cases ( ₹17,685 crore) in the same period a year ago.

Card and internet-related frauds:

• The card and internet segment witnessed a substantial surge in fraud cases, reaching 12,069 incidents during H1FY24.
• The amount involved in these card and internet-related frauds amounted to ₹630 crore, compared to 2,321 cases totaling ₹87 crore in the corresponding period of the previous year.

Concerns about cyber threats:

• The report highlights the growing threat of fraud and data breaches originating from cyber threats.
•  Safeguarding banking and payments systems from these threats is identified as a critical need.

Risk to banking sector:

• According to the report, frauds within the banking sector posed risks to,
• Reputation. 
• Operations.
• Overall business. 
• Potentially eroding customer trust.
• Carrying implications for financial stability.

Decrease in average amount involved

• Despite the surge in fraud cases, the total number of reported frauds by banks in 2022-23 declined to a six-year low.
•  The average amount involved in fraud during this period was noted to be the lowest in a decade.

Improvement in asset quality

• Indian banks continued to show improvement in their asset quality, with the gross non-performing assets (GNPA) ratio reaching a new decadal low as of September-end.
• The trend of improving asset quality, as measured by GNPA ratios, has been ongoing since 2018-19 and has continued into 2022-23. 
• The report highlighted that recoveries and upgrades accounted for around 45% of the reduction in GNPAs of SCBs during 2022-23. The agricultural sector had the highest GNPA ratio, while retail loans had the lowest.
• The RBI stated that both the banking system and non-banking financial companies (NBFCs) remained resilient, supported by high capital ratios, improved asset quality, and strong earnings growth.

Importance of resilience and risk management:

• Acknowledging the evolving risks faced by the banking system, the report emphasizes the importance of building resilience through good governance and robust risk management practices.
• The RBI emphasized the need for strengthening governance and risk management practices and building additional buffers to sustain this improvement.

Conclusion:

The RBI's report underscores the rising threat of fraud and cyber threats, emphasizing the importance of resilience and risk management. Despite challenges, the banking sector's improved asset quality and robustness contribute to sustained growth, urging continued vigilance and strengthening of risk mitigation measures.