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MUMBAI : Loans disbursed to small and medium businesses during the pandemic could pose a higher risk of fraud as banks do not continuously monitor them, said Deloitte India’s latest banking survey. The survey captured the views of 72 senior management executives responsible for compliance and fraud risk management from various financial institutions.

The survey participants included private, public, foreign, co-operative and regional rural banks in India.

The survey showed that more than half of the banks and financial institutions did not continuously monitor MSME assets as part of the fraud risk assessment. “About 51% of the respondents indicated that they do not include MSME assets in their continuous monitoring process. In light of recent government interventions, this is a potential area of concern," it added.

As part of covid stimulus measures, the government had launched the Emergency Credit Line Guarantee Scheme (ECLGS) to support MSMEs and other businesses with operational liabilities. Under the 4.5 trillion collateral-free automatic loan scheme for small businesses, the guarantee was offered by the National Credit Guarantee Trust Co. Ltd (NCGTC) through a Guaranteed Emergency Credit Line (GECL) facility. The guarantee cover will be available for additional working capital and term loan facilities of up to 20% of the outstanding credit limit of up to 25 crore.

According to a research report by State Bank of India, 64.4% of the total limit or 2.9 trillion was already sanctioned by 21 November 2021.

The Deloitte India survey also showed that the majority of financial institutions polled said end-use monitoring was the most vulnerable stage within the corporate and MSME loan cycle to pose the greatest risk of fraud. “The key to establishing an effective continuous monitoring framework, is to get its various enablers right such as an early warning signal (EWS), market intelligence and database research and synchronise their output," Deloitte India said.

According to the survey, 78% of respondents said frauds in the banking sector will increase over the next two years. This is a significant change compared with the previous edition of the survey wherein 40% respondents reported 20% increase in fraud, it added.

The increase in fraud is primarily due to the large-scale remote working model, rise in customers using non-branch banking channels and the limited use of forensic analytics tools to identify potential red flags. “In the coming years, the banking industry could witness a continued rise in fraud incidents spurred by disruptions caused by the pandemic. While the changes were likely on the cards, the accelerated pace has possibly been an uneasy one to keep up with," it added.

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