Fraud in India: A Massive Problem Thriving on a Lack of Awareness

India, with a population of 1.5 billion people, represents close to one-fifth of the global population and a rapidly growing market for goods and services. It also has its fair share of problems with fraud. That is why, last month, Fraudbeat took time to interview Ajay Kumar, Risk Manager at one of the leading banks in India, YES Bank, to learn more about major fraud issues in the subcontinent.

Kumar has almost two decades worth of experience managing risk and tackling fraud at some of India’s largest financial institutions, and banks in particular. Unfortunately, due to technical difficulties, the video recording of this interview is not available. However, below is a transcript of the conversation edited for length and meaning.

India’s Biggest Fraud Threat Today

Ronen Shnidman: Let’s start with an easy question. What is the biggest fraud threat in India today?

Ajay Kumar: The biggest challenge India faces today in combating fraud involves UPI-related transactions and newly opened digital bank accounts. Fraudsters are increasingly exploiting these channels to steal the hard-earned money of Indian citizens. A significant portion of the stolen funds is being transferred out of India to countries such as Cambodia, Nepal, and Hong Kong. This makes the issue not just a national concern for India, but a broader international problem requiring coordinated action. 

RS: That’s very interesting. So, the scams that are being used to defraud people in India, the money is going to places in Southeast Asia, it sounds like. 

AK: Yes, yes, and Rajasthan, one of the states of India is the biggest hub of this fraudster activity. Most of the fraudsters are cloning SIMs and also sending the new accounts and password IDs to the fraudsters who are operating from outside of India.

This presents a big challenge for law enforcement, to find the actual problem and enforce change. After a person falls victim to fraudsters—whether through digital arrest scams, phishing, or card skimming—the next logical step is to trace the transaction or series of transactions. Unfortunately, there is currently no comprehensive system in place to monitor these movements, analyze them, and track the funds to the final point in the chain

.

How Indian Fraudsters Bypass Account Limits

RS: Isn’t there some built-in limit, though, with UPI, regarding the maximum amount that can be transacted daily?

AK: While transaction limits do exist, modern banking systems can often be manipulated to bypass them. With the rise of digital banking, in addition to UPI, there are numerous types of accounts that can be used to funnel the proceeds of scams. For any individual who holds an online banking account in India, daily transaction limits are applied—however, these limits are typically set based on the customer’s income profile. As a result, fraudsters attempt to open bank accounts with high-income profiles in order to secure higher legitimate transaction limits, which they can then misuse for fraudulent transfers

So, UPI is one thing. Because in UPI two lakh a piece in transactions is allowed daily.

RS: For non-Indian readers, a lakh is equal to 100,000. So two lakh is 200,000 rupees or $2,200.

Ajay, please continue.

AK: Apart from UPI, the online digital banking accounts are more convenient for daily transactions. And on the basis of the customer profile provided, the bank is giving a high transaction amount limit. So most of the fraudsters are giving fake profiles to the banks and the banks are giving high-class accounts to the fraudsters. 

Fraudsters are using fake Aadhaar IDs to open mule accounts, in collusion with complicit vendor staff. This scenario primarily constitutes vendor risk, as it stems directly from inadequate oversight and internal controls within the third-party vendor which provides Aadhaar IDs.

Some banks offer MSME accounts, which are current accounts for business, where the transaction limit is approximately 20 lakh (INR 2 million or $220,000 ) per day. So fraudsters are using MSME accounts to process the proceeds from their scams due to higher daily transaction limits. They are then transferring the money from India to Cambodia, Nepal, even Pakistan – the Asian countries are the hub for these kinds of frauds. 

AK: An added twist is crypto. Fraudsters are investing in crypto. And at this stage, there’s no mechanism to analyze the crypto kind of trade, so they are investing in Bitcoin and other cryptocurrencies. So the problem for the banks, for law enforcement agencies, and for me also, as a bank investigator, we don’t have access to analyze these cryptocurrency transactions or Bitcoin transactions. This is a big challenge and unfortunately, we do not have any system in place to effectively combat these kinds of issues

RS: Okay, that’s very interesting because there has been some recent advances in crypto chain analysis, but it probably hasn’t gotten to banks in India yet. That is interesting. What could Indian bank staff do now to combat fraud in India?

AK: They are auditing the profiles of customers. They are checking the KYC of customers quarterly. For some of the accounts, the addresses on the accounts are visited by some agencies or banks. So the banks are proactive, but the problem is the quantity of fraudulent accounts is very high. There are millions and billions of transactions happening in one day in India as the base is very high.

So, in most of the cases, the bank is losing. And in the other direction, there is little help coming from the government side. There’s a problem with data privacy, and the data privacy law. But let’s not get into that.

Fraudsters are threatening senior citizens or white-collar people, retired people. They are presenting themselves as people from the law enforcement agencies and they are alleging that your name has come up in connection with a crime. That means, they will say, that you are obliged to listen to and follow what they are saying, which invariably involves transferring funds. 

Recently, a 22 crore (INR 220 million or $2.4 million) fraud occurred involving a single non-resident Indian (NRI) couple. From 2017 to 2025, I think there was 225% growth in fraud from SIM swapping, SIM cloning methods, misrepresentations and alluring people to invest in fraudulent investment schemes. The latter attracts people with promises of much higher profits than bank deposits, which offer only 6%-7% interest.

Indians lost an estimated 22,842 crore rupees (INR 228.4 billion or $2.5 billion) from digital and cyber fraud in 2024. So you can understand the scale of what is happening. It is a big deal and an international issue. India is facing a very, very big challenge from these fraudsters and their systems. 

What Fraud in India Used to Be Like

RS: Well, let’s get some perspective, as you’ve been in the industry for over 15 years. How has fraud changed since you started out 16 years ago?

AK: Early in my career, we didn’t see such rampant fraud. There was fraud involving the manipulation of documents or identity theft and impersonation. Most fraudsters would use KYC documents of others to get loans. There were no words for things like digital arrest or cyber scamming, all these things. You could describe my career in three stages: Dealing with document fraud, setup fraud and now digital fraud.

Handling document fraud was very simple. It simply involved catching the manipulation of any written documents and conducting KYC properly. For example, a person might manipulate their salary slips or their bank statement. Then, they would take loans from the bank. Your job primarily involves making sure the paperwork is accurate. 

Setup Fraud, India’s Bust-out Fraud

Then, there’s setup fraud. For this fraud, a group of people will establish a fake company and the company, if you were to check it initially, the company would look very good. The people seem genuine.

After that, salary accounts would be opened for all of the employees who are supposedly working at that company. But actually, most of these people are ghost employees. First, they open the current account of the company and then they open salary accounts for the ghost employees.

Then they route money from that company account, to the ghost peoples’ accounts, where they keep the required minimum quarterly balance and then they accept pre-approved loan offers, personal loans, auto loans and any other consumer loan. The fraudster will pay the first loan repayment amount and then after they will take out another loan and default on subsequent payments.

RS: This is what we would call in America bust-out fraud. The fraudsters take out loans and don’t repay you in the end.

AK: You can quickly reach up to 250 persons in one group and the amount lost can cross approximately 400 or 500 crore rupees (INR 4 billion – INR 5 billion or $44 million – $55 million). Losses are huge and then after investigation it is established that the company is fake, the directors are fake and the people behind the salary accounts are fake, and this is a setup fraud. 

The Need for Greater Risk Awareness

RS: It sounds like India has a huge fraud problem. I mean America has a huge fraud problem. Southeast Asia has a huge fraud problem, but it sounds like India also has a huge fraud problem. What can the average Indian do to help fight fraud?

AK: The core problem lies in the low level of financial awareness among people. Whether individuals are illiterate or working in white-collar professions such as doctors, engineers, or judges, many still lack basic knowledge about how banks and banking systems work. This lack of awareness makes them vulnerable to even the simplest forms of fraud.

The first priority must be risk culture. Every bank employee should feel responsible for identifying and preventing activities that could be exploited by fraudsters.

The second concern is the pressure of sales targets for employees selling financial products. These targets often push people to cut corners or overlook red flags, which ultimately benefits fraudsters. This leads to fraudulent account openings, unauthorized transactions, fraudulent loans, and other abuses.

Again, the key is risk culture and awareness. People must think carefully before they act or share any information. They must be 100% sure that the request they receive is genuine. Since almost every Indian uses a mobile phone multiple times a day, they often click or share information without verifying its authenticity. Many do not know whether the information displayed on Google or social media is real. This lack of verification is a global issue.

In the digital era, the real challenge is determining whether information is genuine. While no single system can solve this completely, awareness can significantly reduce fraud. If individuals verify the website domain, double-check information through reliable sources, and avoid sharing sensitive data impulsively, fraud rates will drop substantially. Awareness is critically important.

All stakeholders should promote awareness through multiple channels. For example, in digital arrest scams, fraudsters call through WhatsApp pretending to be law-enforcement officers and claim that a person’s name is linked to a crime. Panic and fear cause victims to lose millions of rupees within minutes. This makes awareness campaigns even more essential, and the government must actively participate in them.

In India, the Ministry of Home Affairs operates a robust system to combat such cases. Victims can call a designated helpline to report the loss, and the system immediately attempts to freeze all accounts involved in the fraudulent transactions. This is a significant step by the government to counter financial fraud.

RS: We have to wrap up because we’re out of time.  Do you have any last things to say?

AK: Risk awareness among people is extremely important. If someone who is not part of the financial or banking industry reads our discussion and gains greater awareness as a result, I will consider it meaningful and worthwhile.