Fraud detection has to improve to protect banks: BCT Digital CEO

With the rise of digital and contactless banking, fraudsters have found newer ways to exploit vulnerabilities, said Jaya Vaidyanathan, chief executive officer (CEO) of BCT Digital

BCT Digital is a fintech, regtech, and sustaintech solutions provider. It recently enhanced its rt360 Early Warning System with the integration of Goods and Services Tax (GST) data. It brings GST non-compliance into sharp focus within the rt360 Credit Monitoring framework. In July last year, the Reserve Bank of India recognised the company’s s rt360 Real-Time Monitoring System. JAYA VAIDYANATHAN, chief executive officer (CEO) of BCT Digital, interacted with Raghu Mohan via email. Edited excerpts:  Why do frauds continue to plague banking and financial services despite all the investments in technology? 

With the rise of digital and contactless banking, fraudsters have found newer ways to exploit vulnerabilities. The high volume and speed of digital transactions make traditional fraud detection and fund tracking increasingly difficult. While regulatory gaps and compliance failures continue to create vulnerabilities for exploitation, the Reserve Bank of India (RBI) is taking stringent measures to close these gaps and strengthen compliance. Addressing these challenges requires a proactive, technology-driven approach, alongside robust regulatory oversight to enhance the resilience of the financial ecosystem. 

What has been the impact of BCT Digital’s rt360 real-time monitoring system (rt360 RTMS) in banks? 

The RBI has recognised it as a “comprehensive surveillance mechanism for monitoring transactions on a continuous, real-time basis”. BCT Digital is among the three finalists selected for the RBI’s Fourth Cohort of the regulatory sandbox themed 'Prevention and Mitigation of Financial Frauds' initiative, with IDBI Bank as a key testing partner. During testing, we covered multiple use cases, including real-time early warning alerts on cheque bounces and ad hoc sanctions. The system scanned millions of banking transactions 24×7, processing them in 2-5 minutes and issuing alerts in milliseconds. At a leading state-run bank, rt360 RTMS has been fully operational, monitoring more than 1.5 million accounts and processes 150,000 data points daily. We have seen significant improvements. Post-implementation, the system detects early indicators of stress and fraud in real time, and along with other internal efforts by the bank, has seen an approximate 250-plus basis points reduction in gross non-performing assets year-on-year.  

The Report on Trend and Progress of Banking in India FY24 said that based on the date of reporting, the number of frauds increased to 18,461 with the amounts involved at ₹21,367 crore in April-September FY25 (the bulk of this being on the advances front). This compares to 14,480 and ₹2,623 crore in the same period of FY24. Your views 

Over the past two decades, the banking system has primarily focused on mitigating channel frauds, such as phishing attacks and credit card frauds, to protect customers. This focus has yielded positive results, with liability frauds consistently declining. However, credit frauds — where banks themselves are the affected party — have continued to rise in recent years. Recognising this gap, we have developed a real-time monitoring solution specifically targeting fraud detection on the asset side. Until last year, this area had not received significant attention, but the introduction of the RBI’s revised guidelines on Fraud Risk Management has driven increased awareness and action among financial institutions. 

A paper by RBI staffers in its February 2022 bulletin stated that zombies account for about 10 per cent of total debt of the non-financial corporate sector and they have also absorbed about 10 per cent of total bank credit extended to all firms in the economy. How do these firms fly below the radar? 

Zombie organisations significantly challenge India’s vision of Viksit Bharat by 2047. As highlighted in an RBI study, these firms represent a downside risk to the economy. Instead of utilising borrowed capital for growth or new investments, these organisations rely on continuous credit infusions simply to stay afloat. This allows businesses to survive without engaging in meaningful economic activities — a troubling trend that must be addressed. The RBI’s findings indicate that such firms’ dependence on credit dilutes the impact of monetary policy. However, improvements in risk-based supervision and a stronger insolvency framework are gradually restricting the long-term survival of these entities.