A sound banking system should possess three basic characteristics to protect depositor's interest and public faith. These are a fraud free culture, a time tested Best Practice Code, and an in house immediate grievance remedial system. All these conditions are either missing or extremely weak in India.

The report contains a discussion on the rise of banking frauds and various methods that can be used to avoid such frauds. A “Bank Fraud” is a deliberate act of omission or commission by any person carried out in the course of banking transactions or in the books of accounts, resulting in wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank.

Technology is a key driver in the banking industry, which creates new business models and processes, and also revolutionizes distribution channels. Banks which have made inadequate investment in technology have consequently faced an erosion of their market shares. The beneficiaries are those banks which have invested in technology. Adoption of technology also enhances the quality of risk management systems in banks. Recognizing the benefits of modernizing their technology infrastructure, banks are taking the right initiatives. While doing so, banks have four options to choose from: they can build a new system themselves, or buy best of the modules, or buy a comprehensive solution, or outsource. In this context banks need to clearly define their core competencies to be sure that they are investing in areas that will distinguish them from other market players, and give them competitive advantages. A further challenge which banks face in this regard is to ensure that they derive maximum advantage from their investments in technology and avoid wasteful expenditure which might arise on account of uncoordinated and piecemeal adoption of technology; adoption of nappropriate/ inconsistent technology and adoption of obsolete technology.

Challenges of the Technology used by the bank are:

• New markets, products, services, delivery channels are being opened up after the phase of liberalization and deregulation.
• The banks have also opened up for the market of derivatives as they give higher returns though they have higher risk value.
• The upcoming challenge for banks is to finance the growing technology firms IT innovation.
• The use of technology has implications for the stability of banks and of the economy stability and future growth.

The study determines Default and Frauds in the Indian banks due to the use of lagging technology and the steps to be taken in order to reduce or eliminate them.