Digital Fraud Incidents Rising Since July: RBI Deputy Governor Highlights Banking Sector Challenges

Reserve Bank Deputy Governor T Rabi Sankar reported on Friday that digital fraud incidents have been increasing since July this year, reversing a previously declining trend.

Speaking at an SBI event in Mumbai, Sankar revealed that while fraud rates per transaction had been consistently decreasing from the beginning of the year until July, they have since started to rise again.

"If you examine frauds relative to transaction volumes, you would notice that compared to last year, the incidence significantly decreased until approximately July, when it began trending upward again," he explained.

Although Sankar did not specify the magnitude of the increase, he suggested it might be cyclical or seasonal in nature.

He highlighted that regulators are deploying digital infrastructure tools such as the "mule hunter," designed to identify conduit accounts used to channel fraudulently obtained funds.

According to the annual report for FY25, total fraud cases decreased to 23,953 from over 36,000 in the previous financial year. Most frauds occurred in digital payment categories, including card and internet transactions. Private sector banks accounted for nearly 60% of fraud cases by number, while public sector banks represented over 71% by value as of the end of FY25.

Sankar noted that regarding payments, banks likely "did not foresee" UPI's potential due to structural limitations, while more agile fintech companies capitalized on these opportunities.

Addressing an audience primarily composed of banking professionals, the RBI Deputy Governor warned that banks are "structurally vulnerable" due to their monolithic IT systems and high fixed costs from branch networks and compliance requirements. He cautioned that "incremental digitization is unlikely" to maintain their competitive position.

To compete effectively with the fintech ecosystem, Sankar recommended that banks focus on modernizing their core infrastructure to make it less rigid and monolithic.

He emphasized that competitiveness may now depend more on data capabilities and technological flexibility rather than traditional balance sheet strength.

Sankar also expressed concern about the risks posed by private digital currencies to banks, describing them as potentially existential yet not thoroughly understood or debated globally.

He noted that even with the introduction of Central Bank Digital Currencies (CBDCs), banking business models will likely undergo significant transformation, and banks need to understand these impacts.

Additionally, Sankar observed that the "comfortable assumptions" of post-Cold War globalization are fading as protectionist tendencies re-emerge and critical supply chains are being restructured.