Rising digital frauds: Reserve Bank of India Governor Sanjay Malhotra recently highlighted the growing menace of cybercrimes in India and the urgent need for robust systems to curb financial fraud. Over the past two years, digital fraud and IT-related risks have increased multi-fold due to rapid advancements in artificial intelligence and technology. This has necessitated enhanced oversight by banks, particularly over third-party service providers.
Between April and September, 18,461 cases of fraud were reported, amounting to Rs 21,367 crore. This represents a sharp increase from the previous year, which saw 14,480 cases involving Rs 2,623 crore. The number of fraud incidents surged by nearly 28%, while the total financial losses skyrocketed more than eight-fold. A significant challenge is that many digital fraud cases go unreported due to a lack of awareness. This mirrors a global trend, with a TransUnion report indicating that 4.6% of all digital customer transactions worldwide are suspected to be fraudulent.
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Rise of UPI and digital frauds
The RBI, in its latest circular, noted that while digital transactions offer convenience and efficiency, they have also led to a surge in cyber fraud. Mobile numbers now play a crucial role in authentication and verification, serving as key identifiers for financial transactions. However, scammers exploit this dependency by using stolen or duplicated numbers to initiate various types of online fraud.
India is particularly vulnerable to severe data breaches, exposing sensitive information to malicious actors. The country operates the world’s largest biometric digital identity program, Aadhaar, which has been issued to over one billion people and is increasingly required for financial transactions. Fraudsters manipulate technology to breach data security, extracting personal information that victims believe is accessible only to government authorities. This enables scammers to make fraudulent demands appear credible.
Unlike traditional petty crimes, organised digital frauds are not merely the work of financially desperate individuals. Instead, they involve a new class of criminals equipped with sophisticated tools. According to experts, one major factor behind the surge in cyber fraud is India’s overburdened and underprepared telecom infrastructure. Fraudsters exploit weaknesses in telecom networks to overwhelm unsuspecting victims with deceptive calls and messages, creating fertile ground for cybercrime.
Growing sophistication of cybercriminals
Cybercriminals employ increasingly sophisticated techniques that often outmanoeuvre law enforcement and security systems. A particularly alarming scam, known as “digital arrest,” has emerged in recent years. In this scheme, fraudsters impersonate law enforcement officials online and coerce victims into transferring large sums of money. The scam has become so prevalent that Prime Minister Narendra Modi has publicly warned citizens against falling prey to it.
Another concerning aspect is the strong network of relationships cultivated by fraudsters with local police in key cybercrime hotspots, allowing them to operate with impunity. The consequences of rampant cybercrime are severe, with thousands of ordinary citizens facing the risk of losing their life savings due to deceptive calls or messages. Almost everyone knows someone—a relative or a friend—who has fallen victim to these schemes, losing hard-earned money in the process.
Curbing digital frauds
The government has been taking proactive steps to address cyber fraud. One innovative measure is the development of ‘Mule Hunter.ai,’ an artificial intelligence-based model created by the Reserve Bank Innovation Hub in Bengaluru. This AI-driven system is designed to help banks detect and reduce instances of digital fraud.
One proposed solution to curb digital fraud is the introduction of a mandatory waiting period for large peer-to-peer transactions. Under this plan, transactions exceeding Rs 2,000 may face a four-hour delay, allowing users time to verify their legitimacy. According to data from the National Payments Corporation of India (NPCI), 22.5% of peer-to-peer transactions exceed Rs 2,000. While this measure might cause minor inconveniences, officials believe it is a necessary step to mitigate growing security risks.
Fraudsters continuously refine their techniques, using methods such as phishing, malware, and SIM cloning to deceive users into divulging sensitive information or downloading malicious applications. Combatting these threats requires an equally sophisticated response. Key measures include upgrading IT infrastructure, strengthening security protocols, and increasing collaboration between financial institutions and cybersecurity experts.
Public awareness — a critical line of defence
While technological solutions are crucial, raising public awareness is equally important. Many cyber frauds succeed due to a lack of financial literacy and digital security awareness. Large-scale public campaigns can be powerful tools in combating cybercrime. Since fraudsters constantly evolve their methods, public awareness campaigns must be creative, persistent, and accessible to people across different demographics.
A little healthy scepticism on the part of individuals can go a long way in preventing scams. People should be encouraged to verify suspicious calls, avoid sharing sensitive information online, and report any dubious financial transactions to authorities. Policymakers must emphasise the importance of proactive vigilance among citizens, alongside technological and regulatory interventions.
As the government expands digital banking and financial inclusion, ensuring that these advancements do not expose ordinary citizens to greater risks is paramount. The rise of AI-based cybercrime, including deepfake scams that manipulate images to instil fear and coerce payments, underscores the need for a robust defence mechanism. While cybercriminals continue to devise novel tactics, the best tools to counteract them remain the same: a combination of technology, regulation, and widespread awareness.