Fraud Detection in Loan Accounts: Red Flags Every Banker Must Watch

Vinu: Manu, in real lending scenarios, where do fraud risks usually begin?

Manu: At the appraisal stage itself—when data is accepted without verification. Fraud rarely starts later; it is often missed early.

Vinu: What is the first practical red flag?

Manu: Mismatch in financial data. If sales are ₹5 crore in financials but GST or bank turnover supports only ₹3.5 crore, something is wrong.

Vinu: How do stock statements indicate possible fraud?

Manu: Inflated stock. Showing ₹1.5 crore stock for a business with ₹40 lakh monthly sales is unrealistic and used to draw excess funds.

Vinu: What about debtor figures?

Manu: Bogus debtors are common. Large receivables with no proper ageing or repeated names may indicate accommodation entries.

Vinu: Can bank account behaviour reveal fraud?

Manu: Yes. Round tripping is a key sign—funds going out and coming back to show artificial turnover.

Vinu: How does diversion of funds typically happen?

Manu: Loan funds meant for business are transferred to related parties, used for property purchase, or routed to other businesses.

Vinu: Any red flags in documentation?

Manu: Fabricated invoices, identical quotations, and inflated project costs—like showing machinery of ₹2 crore when actual value is ₹1.5 crore.

Vinu: What role do related-party transactions play?

Manu: A major one. Continuous transactions with group concerns at non-market terms often hide fund siphoning.

Vinu: How can bankers detect fraud early?

Manu: Cross-verify everything—financials with GST, stock with site visits, and turnover with bank credits.

Vinu: Final takeaway?

Manu: Fraud leaves patterns, not just events. A vigilant banker connects those patterns early.

Vinu: That gives a clear practical lens.

Manu: And that’s what prevents losses before they happen.

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