In the face of rising risk of fraud in the banking sector, financial institutions need to have another aggregator to protect them on the lines of what the National Payments Corporation of India (NPCI) does for bank customers, said M Nagaraju, Secretary, Department of Financial Services (DFS), Ministry of Finance.

This observation comes in the backdrop of frauds in various banking operations jumping eight times to ₹21,367 crore in the first six months of the current financial year (against ₹2,623 crore in the year ago period), with advances related fraud alone accounting for 92 per cent of the total (RBI data).

The DFS Secretary noted that NPCI also provides a fraud monitoring solution that allows banks to generate alerts and decline transactions. This fraud mitigation solution is artificial intelligence and machine learning-based.

“We also believe that there is a need to have another aggregator, which will protect the financial institutions from fraud,” Nagaraju said at the Indian Banks’ Association’s Banking Technology Conference.

He emphasised that financial institutions need to remain vigilant, upskill their employees, and put in efforts to maintain customer trust and institutional stability.

In its latest “Report on Trend and Progress of Banking in India 2023-24”, the RBI observed that while many cases of digital frauds result from social engineering attacks on customers, there is also a rapid increase in the use of mule bank accounts to perpetrate such frauds. This exposes banks not only to serious financial and operational risks, but also reputational risks.

“Banks, therefore, need to strengthen their customer onboarding and transaction monitoring systems to monitor unscrupulous activities. This also requires effective co-ordination with the law enforcement agencies (LEAs) so that the concerns occurring at a systemic level are detected and curbed in time,” the report said.

The Reserve Bank is working with banks and LEAs to strengthen transaction monitoring systems and ensure sharing of best practices for controlling mule accounts and preventing of digital frauds. Another initiative in this direction is the AI / ML based model called MuleHunter. AITM, being piloted by Reserve Bank Innovation Hub (RBIH).

Published on January 24, 2025