Mumbai: Lenders in India will soon be able to look up in a database, the names of people who have defrauded banks and finance companies here, even study their modus operandi.
The Credit Information Bureau (India) Ltd (Cibil), which tracks the credit history of commercial and consumer borrowers, will launch in September the first national, centralized database of fraudulent financial activities.
This database, to be named CibilDetect, comes as a response to rising instances of fraud in the financial sector and has been developed at the behest of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA), which represents all banks in the country.
Commercial banks were hit by frauds totalling Rs1,431.11 crore in 2008, up 32.7% from Rs1,077.84 in 2007, according to RBI data.
Non-banking financial companies (NBFCs) that were unaffected in 2006 reported 13 cases of fraud totalling Rs1.38 crore in 2007, and 103 cases totalling Rs14.87 crore in December 2008.
Cibil provides comprehensive credit information on consumer and commercial borrowers to lenders in India. It assigns credit scores to customers that banks use to judge creditworthiness.
“This initiative will enable banks (to) access fraud-related data on a real time basis at the click of a button,” said a senior IBA official who asked not to be named because he isn’t the agency’s official spokesperson.
Earlier, IBA sent this information through the postal service to each bank’s central office, which would then circulate it among its branches.
Globally, a credit score is used in various circumstances and during several transactions. It is used while buying homes and cars, even getting a telephone connection. In India, it is still largely used in the retail lending space.
“The database on frauds will contain the modus operandi used to perpetrate frauds,” said Arun Thukral, managing director of Cibil. “It will look at the methods used to commit fraud—are people using identity theft or any other suspicious activities? The data will also indicate if a person or an organization was involved in fraudulent activity or was the victim of fraud.” For instance, if a bank is lending money to an individual and wants to check if the customer has ever been involved in any fraudulent activity, it can check with the database.
According to Thukral, the database “will be a repository of any such data”.
Cibil set up its consumer bureau in 2004 with four million trade records of 13 members. It has since grown rapidly and has data on at least 137 million transactions of 170 members, including banks, mortgage firms and NBFCs. The bureau offers credit scores for all types of loans, including personal ones. The scores vary from 300 to 900; the higher the score, the higher the creditworthiness.
Cibil maintains both positive and negative information on borrowers and provides this to its members in the form of various risk management tools such as credit information reports and portfolio review reports. Instances of fraud are on the rise, said a banker. Banks sometimes see the same fraud being perpetrated across branches because these aren’t linked, added Thukral.
“With the increasing usage of alternate channels like mobile phone and Internet banking and cards for purchases, the instances of frauds have been on a rise,” said a senior Axis Bank executive who declined to be named as he is not authorized to speak to the media. Banks have recently also made it mandatory for customers to submit identity proof for high-value purchases using credit or debit cards.
“The most common fraud that banks have been hit by is identity fraud. Many customers are forging documents and opening accounts,” said a general manager with Central Bank of India. “These accounts are later used for transfer of funds, which are fraudulently acquired.” The banker did not want to be identified.
“We have also seen banks reporting rising frauds in the education and home loan segments,” said the IBA official mentioned in the first instance. The other common fraud is related to altering of cheques without appropriate authority and acknowledgement from the issuer, he added.
“Many fraudulent customers in association with builders take multiple loans on the same flats. In education loans, customers are faking school- leaving certificates and producing fake admission letters from fictitious institutions to secure loans,” said a senior retail banking executive at a Mumbai-based public sector bank. He did not want to be identified.
In February, then Union minister of state for home affairs Shakeel Ahmad had told the Lok Sabha that between April and December 2008, ICICI Bank Ltd had reported 8,280 cases of credit card fraud worth Rs11.47 crore to RBI.
Foreign banks were also hit badly. American Express Banking Corp. had 703 cases in which it lost about Rs6.04 crore, while the Hongkong and Shanghai Banking Corp. Ltd lost Rs4.90 crore in 2,484 cases, Ahmad told Parliament. Among other foreign banks, Citibank NA incurred losses of Rs4.73 crore, Standard Chartered Bank, Rs2.39 crore and Deutsche Bank, Rs2.09 crore, all during the same period.