Despite investing heavily into technology, the government is still concerned about the rise in digital frauds and mule accounts in the financial system, M Nagaraju, secretary Department of Financial Services, Ministry of Finance said on Friday. “The situation is not very good,” he added.
“The traditional systems have been provided to tackle such issues. However, extensive deliberation is required for a feasible solution and here the role of artificial intelligence (AI), Generative AI would be very, very vital,” he said at an event organised by the Indian Banks Association in Mumbai. According to the recent Trends and Progress report, in 2024-25, private sector banks accounted for 59.3% of the total number of frauds reported, while public sector banks accounted for 70.7% of the amount involved.
Strengthening Risk Mitigation and IT Infrastructure
“Traditional systems can only react once the event has triggered, resulting in deployment of fire-fighting measures, thereby leaving the scope for reputational risk which is very hard to restore, he said. Therefore, he urged banks to have a strong risk mitigation framework backed by robust corporate governance structure, and scalable IT platforms including cyber risk prevention ecosystems.
He added that the inclusion of artificial intelligence models could help predict events by analysing global and domestic macroeconomic conditions which could help prevent incidents which could turn out to be catastrophic for the financial system.
The Importance of Data Quality and System Integration
At the same event, Reserve Bank of India Deputy Governor T Rabi Sankar echoed the same view. However, he pointed out that banks can use AI to detect frauds, however the results would only be as good as the data fed to the model. “If you can have a system that uses system-wise data and not just payment data or the bank’s data, then the ability of these engines to identify frauds either before they happen or manage frauds after they happen will be by definition better than any single system,” he said.
He also urged all banks to use the MuleHunter and the digital payments intelligence platform when the pilot commences. “…all of us must collaborate and ensure that we make this a success by participating and constantly engaging with Reserve Bank Innovation Hub or the FinTech Department to ensure that we actually roll them out as quickly as possible.”