“The increased adoption of digital banking and FinTech solutions highlights the need to improve traditional banking models
and address new regulatory challenges,” the regulator noted in its report.
The regulator also red-flagged the rapid increase in the use of mule bank accounts to perpetrate digital frauds. The RBI said that such frauds expose banks not only to serious financial and operational risks, but also to reputational risks.
“Banks need to strengthen their customer onboarding and transaction monitoring systems to monitor unscrupulous activities.” it said. “This also requires effective co-ordination with the law enforcement agencies (LEAs) so that the concerns occurring at a systemic level are detected and curbed in time.”
For the April-September 2024 period, banks report digital (card and internet) frauds worth Rs 514 crores, involving 13,133 cases. During the same period last year, banks had reported such frauds totaling to Rs 630 crores involving 12,069 cases. The share of internet and card frauds in the total frauds stood at 44.7% in terms of amount and 85.3% in terms of number of cases. Meanwhile, the regulator also asked non-bank financial companies to be mindful of the evolving concentration risk and climate-related financial risks associated with credit to certain sectors. It also advised NBFCs to further diversify their sources of funds as a risk mitigation strategy and stop over-reliance on bank-led funding.
The RBI has also said non-banks should deter from the imprudent ‘growth at any cost’ approach, which could be counter-productive. Instead they should develop a robust risk management framework and strengthen initiatives to address customer grievances, adhere to fair practices and avoid recourse to usurious interest rates.