KEK Bank fraud involved fraudulent issuance of Letters of Undertaking (LoU) and Letters of Credit (LoC) at one of its branches. The fraud was facilitated by incomplete KYC processes that allowed the perpetrators to explo

The type of fraud in the given case is Credit Fraud / Loan Fraud . In this specific context, the fraudulent activities involve the misuse of credit facilities, such as raising unauthorized credit or obtaining loans under false documents. The fraudsters exploit weaknesses in the system to access credit without proper authorization or for purposes unrelated to the stated use. Major frauds which take place with the help of incomplete KYC: To evade taxes, an individual routes savings transactions through multiple bank accounts. An individual illegally obtains personal information/documents of another person and takes a loan in the name of that person. He/she provides false information about his/her financial status, such as salary/IT return and other assets, and takes a loan for an amount that exceeds his / her eligible limits with the motive of non-repayment. A person takes a loan using a fictitious name and there is a lack of a strong framework pertaining to spot verifications of address, due diligence of directors/promoters, pre-sanction surveys and identification of faulty/incomplete applications and negative/ criminal records in client history. Fake documentation is used to grant excess overdraft facility and withdraw money. A person may forge export documents such as airway bills, bills of lading, and Export Credit Guarantee Cover and customs purged numbers/orders issued by the customs authority. Frauds related to the advances portfolio accounts for the largest share of the total amount involved in frauds in the Indian banking sector. Deficient appraisal system, poor post disbursement supervision and inadequate follow up. Siphoning of funds wherein the borrowed funds from banks are utilised for purposes unrelated to the operations of the borrower. Diversion of funds by: Using of short-term working capital funds for long-term commitments not in conformity with the terms of sanction. Using borrowed funds for creation of assets other than those for which the loan was sanctioned. Transferring funds to group companies. Investment in other companies by acquiring shares without the approval of lenders. Shortage in the usage of funds as compared to the amounts disbursed/drawn, with the difference not being accounted for. Over-valuation or absence of requisite collaterals. Concealing Liabilities: Borrowers concealing obligations such as mortgage loans on other properties or newly acquired credit card debts in order to reduce the amount of monthly debt declared on the loan application. Misstatement: Deliberately overstating or understanding the property's appraised value. Shot Gunning: Multiple loans for the same property being obtained simultaneously for a total amount greatly in excess of the actual value of the property. Delay in Action (higher lag time) by the Institutions for declaration of frauds resulting the borrower gets considerable time to erase the money.