An Analysis on Frauds Affecting the Financial Security of the Indian Banking Sector: A Systematic Literature Review

Introduction

An economy needs a well functioning banking system that is crucial for a country's economic growth and progress. With different economic factors influencing the banking sector, both domestically and globally, the role of the banking industry has changed over time. This has allowed the financial sector to explore new opportunities and expand its reach beyond national borders. The banking industry has undergone major transformations in response to shifts in trade and commerce, including the emergence of private sector banks, the integration of technology such as NEFT and smart cards, and changes to capital adequacy standards. These improvements have greatly increased the efficiency and productivity of the banking sector. The Indian banking industry is unique and has undergone three stages of development, from character-based lending to competitiveness-based lending, according to (Singh, 2005). Despite the growth and expansion of the banking industry, it faces many operational risks, including various types of fraud and scams. The Reserve Bank of India is responsible for overseeing the entire banking industry as the central policy-making and national-level regulatory body. However, despite the growth of India's banking industry in terms of revenue and profits, the amount of money lost to bank fraud is on the rise. The Reserve Bank of India and bank management are both concerned about this trend, as these bank frauds are becoming more sophisticated and larger in scale, leading to not only financial losses for the banks, but also a loss of trust. The outbreak of high-value frauds has negatively impacted the financial stability and reputation of banks and the economy (Gupta & Gupta, 2015). Financial security in banks is crucial to the success of any business. Banks offer peace of mind and security to customers with regards to their savings, investments, and other financial assets. Banks have established highly secure systems and procedures to safeguard customers' financial information and provide a secure environment for storing and managing their financial assets, as well as a variety of services such as loans, mortgages, and insurance. Therefore, it's crucial for banks to take extra precautions to maintain the protection of customer data and ensure their financial assets remain secure. Financial security is of utmost importance for banks as customers expect their money to be safe and demand reliable and trustworthy customer service. Banks must ensure their customers feel confident about their money being in good hands and comply with regulations. In the banking industry, financial security is the foundation of the trust between customers and the bank. A fraud is defined as any act or behavior with the intention of deceiving others by falsely claiming or being credited with achievements (Alleyne et al., 2010). Banking fraud has long been a concern for governments around the world (Kaveri, 2014). As the government and the banks continually work to enhance their fraud risk management practices in response to regulations and increasing instances of fraud, there is a pressing need to broaden the compliance approach across a wider scope to combat fraud (Ghosh & Bagheri, 2006). Despite laws aimed at preventing fraud, weak enforcement has limited the impact of compliance. Banks play a crucial role as intermediaries for financial transactions and capital providers for important activities in the economy (Sood & Bhushan, 2020).Ways to prevent and detect bank frauds is therefore essential. The most significant challenge for banks remains in developing comprehensive fraud risk management control measures to detect and prevent frauds (Boateng et al., 2010).