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Digital Frauds In Banks: Reserve Bank Deputy Governor T Rabi Sankar on Friday addressed an event in Mumbai where a majorly of bankers were present. The RBI DG said that banks are "structurally vulnerable" because of their monolithic IT systems and high fixed costs arising from branch networks and compliance costs, and warned that "incremental digitisation is unlikely" to keep them competitive.

Sankar suggested that banks should focus on modernising the core infrastructure to make it less monolithic and rigid in order to compete with the fintech ecosystem.

Rate Of Digital Frauds Rising Since July: RBI DG

He said that the incidence of digital frauds has been rising since July this year. Speaking at an SBI event here, Sankar said that the frauds were going down till July and the Reserve Bank is checking reasons for the increase since then. "If you look at frauds per number of transactions, we would see that compared to last year, from the beginning of the year, that incidence (of frauds) kept on reducing substantially until about July, when it again started rising up," he said.

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However, he did not share the degree of the increase. The RBI DG said the increase can either be cyclical or seasonal. He said that the digital infrastructure is being deployed by the regulator like a mule hunter, which is designed to track down conduit accounts to flush out money received through frauds.

PSBs Are More Vulnerable: RBI DG

As per the annual report for FY25, there was a decrease in frauds in FY25 to 23,953 from over 36,000 in the preceding financial year.
Frauds occurred predominantly in the category of digital payments including card and internet in terms of number. Private sector banks account for nearly 60 per cent of the fraud cases by numbers, while PSBs' share by value is over 71 per cent as of end-FY25, it said.

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Sankar said that in context of payments, it would be "reasonable to assume" that banks "did not foresee" the UPI potential due to some structural aspects, while the more nimble fintechs could pull off the same.

The DG also made it clear that competitiveness may no longer depend as much on balance sheet strength as on data capability and technology flexibility. Sankar also said that the risks from private digital currencies to banks appear existential, yet not very well understood or debated globally.

Even with CBDCs (central bank digital currencies), banking business is likely to change significantly and these impacts need to be understood by banks, he said.

(With PTI inputs)

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