Home / Industry / Banking /  Banks turn to AI to curtail loan frauds

Mumbai: Banks such as state-run Punjab National Bank (PNB) are looking to deploy an artificial intelligence-enabled early warning signal system that crawls the web for information on borrower's activities, including news articles and social media.

Having burnt its fingers in the Nirav Modi scam and seen quite a few wilful defaults, Punjab National Bank has decided to outsource its early warning signal (EWS) system. So far, the bank has been using an in-house system but wants an external agency to revamp it.

Some of the capabilities sought by the bank are artificial intelligence, web crawling, optical character recognition (OCR) for triggering the early warning signal. The bank has put out a public notice seeking bids from interested parties According to the notice, the bank wants a solution capable of giving early warning signals on a dynamic basis, based on information collected from various internal and external sources. This, the bank said, will aid timely corrective action in such loan accounts.

Indian banks have not been very quick in detection of frauds and instances include the 11,000-crore Nirav Modi case which went undetected for several years.

Anxious about the rising instances of frauds in banks and the delay in these being reported, the Reserve Bank of India (RBI) in 2015 took steps to address the problem. Based on the recommendations of an internal working group, the central bank introduced the practice of red-flagging a loan account as part of a mechanism of early warning system aimed at helping banks identify suspicious accounts.

“These signals in a loan account should immediately put the bank on alert regarding a weakness or wrongdoing which may ultimately turn out to be fraudulent. A bank cannot afford to ignore such EWS but must instead use them as a trigger to launch a detailed investigation into a red-flagged account," the central bank had said in 2015.

Meanwhile, Punjab National Bank reported bad loans of over 1 trillion or 14.11% of its aggregate loans as on 30 June.

Some of the alerts sought by PNB are for non-achievement of projected financials given at the time of sanction; if the financials submitted to bank are different which were submitted to regulatory authorities; any time or cost overrun or any negative development which may hamper cash flow from the project and verification and genuineness of receivables and debtors including overseas debtor, among others. These are expected to aid the bank is taking prompt action whenever a red flag is raised by the system.

The central bank has also acknowledged the application of Artificial Intelligence (AI) to the fintech industry in the form of automated data analysis, chatbots and robo-advisers. “AI is being employed to detect fraud by monitoring patterns of customer behaviour," it said in a report in June.

However, experts believe that India trails some of the other nations in terms of AI usage. While adoption of AI in finance and banking in India has been growing, most of the applications are still support related and not meant for decision making, unlike countries like China where many of the critical tasks like loan sanctions are now being handled by AI, Dilip Asbe, chief executive of National payments Corporation of India (NPCI) said earlier this month.

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