RBI to introduce real-time AI-driven systems to check cyber fraud

The Reserve Bank of India (RBI) is working on an artificial intelligence enabled solution to warn individuals about financial frauds in real time, two people aware of the matter said.

As per the plan, individual banks will tap into a central bank data repository hosting information on various types of frauds and their perpetrators, and an AI-based warning system will flag suspicious transactions when they are about to be made.

“The system will leverage AI to collect and analyse data on potential frauds, identify high-risk platforms and notify users during transactions to reduce cyber fraud risks,” one of the two people cited above said on the condition of anonymity.

“While cyber fraud remains under control, the RBI sees this proactive approach as crucial in addressing emerging challenges in the digital financial space,” the person said, adding the central bank will also attempt to anticipate future challenges.

To be sure, the Reserve Bank of India Innovation Hub (RBIH), an RBI subsidiary, has already developed MuleHunter AI, an artificial intelligence and machine learning (AI/ML) model to help banks and financial institutions detect so-called mule accounts used by fraudsters. The new system will, on the other hand, alert users and safeguard digital transactions.

Work in progress

The RBI has been working on building an AI-enabled fraud information system to detect and prevent cyber fraud for a while. An expert group set up by the RBI on cyber frauds has submitted its recommendations, which include implementing AI that can learn from past frauds to identify high-risk transactions.

“The system aims to make cashing out fraudulent funds difficult, while improving the preparedness of banks and payment gateways to detect potential fraud,” the second person mentioned above said.

“Although current fraud rates remain low at roughly one per 114,000 transactions, there is a rise in the volume and average size of cyber frauds. So, these are all part of the plans to increase public awareness to help prevent victimization,” the person said on the condition of anonymity.

Apart from setting up multiple groups to address cyber fraud, the central bank has also established the Cyber Security and IT Examination (CSITE) cell in 2015 under its Department of Banking Supervision, and created a Fraud Monitoring Cell which publishes a directory of officials in banks and financial institutions responsible for fraud reporting.

Updated guidelines

The central bank has also updated guidelines for banks, drawing on insights from the Indian Cybercrime Coordination Centre, a government body dedicated to tackling cyber fraud.

Spokespersons of the RBI and the finance ministry didn’t respond to emailed queries.

According to the 2024 Deloitte-NASCIO Cybersecurity Study, cybersecurity is now a top priority for governments, regulators and corporations as the digital landscape expands with an increasing amount of personal, health, and financial data online, as well as critical infrastructure like transportation, water, and power systems integrated with online components, leading to growing vulnerabilities.

The report, released on 30 September, said governments and regulators are increasingly recognizing that robust information security is essential to the reliable operation of key government services.

Growing attack surface

“The attack surface is growing. More information is flowing online as well as through the Internet of Things. More servers in more places than ever hold the public’s health, financial, and more personal data. More critical infrastructure is integrated with online operational components,” the report said.

“All of this creates a greater number of sites of vulnerability, and state officials are recognizing information security as foundational to the efficient functioning of essential government services,” it added.

According to the RBI annual report released in May, the number of frauds in the banking sector increased by nearly 300% in FY24 as compared to the last two years. The report said that 67% of fraud cases reported in FY24 were from private sector banks, while 75% of the total fraud amount was reported by public sector banks.

The percentage of fraud amount reported by private lenders was 22.8% in FY24.

Overall, online fraud cases increased by 708% in FY 23 and FY24 to 29,082, the RBI report added.