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How technology can strengthen fraud risk management in financial institutions
- Financial institutions have seen a significant increase in fraud cases with losses incurred from such cases experienced by both the institutions and their customers.
- Two types of frauds occur in banking systems, and they include those that defraud the public and those that defraud the bank.
- The first category of fraud happens mostly due to the carelessness of individuals and can be prevented by a heightened sense of awareness and the protection of personal financial details.
- On the other hand, most of the second category of fraud can be traced to neglect in vetting the credit profiles or documents presented by borrowers and bank officials' corruption, according to the Reserve Bank of India (RBI).
- Private sector banks report a higher number of frauds, while public sector banks continually report the highest total fraud amount, according to the RBI.
- Artificial intelligence and machine learning can help bridge the human error and language barrier during onboarding and real-time monitoring of collateral throughout the loan cycle.
- The use of technology can also reduce the risk of fraud from collaterals focusing on farm loans against agricultural lands.
- Recently, the RBI revised its risk management directions for regulated entities, enabling concurrent auditors to examine and report on the authenticity of title documents for large-value loans.
- Real-time monitoring of collaterals will also give banks ample time for legal action and reduce the risk of borrowers fleeing.
- Aside from complying with directions from the RBI, banks can raise borrower awareness and sensitivity, emphasizing the implications of submitting incorrect documents.
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