The Lehman crisis of 2008 had thrown up a big question -- whether regulation has failed to keep pace with financial innovation? Despite tightening of regulations worldwide, be it on corporate laws or banking norms, frauds continue to plague government, companies and banks. A survey by Association of Certified Fraud Examiners on 1,388 cases across 94 countries show companies across the globe lost 5% in revenue or $3.5 trillion due to frauds with financial sector topping the list in terms of number of frauds detected. A detailed analysis by Reserve Bank of India deputy governor KC Chakrabarty revealed while the number of fraud cases in the banking sector has fallen from 24,791 in FY10 to 13,293 in FY13, the amount involved has risen from Rs 2,038 crore to Rs 8,646 crore. This means frauds are coming down but getting more high profile. PSU banks have been soft targets as they accounted for 83% of the amount siphoned off from the system. Of the total number of fraud cases detected, private banks accounted for 55% but the amount involved was 12.9% of the industry aggregate. Majority of frauds are related to loan advances. Increase in the cases of large value fraud involving Rs 50 crore and above in accounts financed through consortium or multiple banking arrangements is a "newly emerging but unwelcome trend", warns Chakrabarty. What may be the root cause behind the disturbing trends in bank frauds is lack of proper due diligence before sanctioning loans. While economic slowdown does increase chances of loan defaults, a rising tendency of wilful defaults and frauds cannot be ruled out. Indeed, the proportion of fraud amount to banks' gross NPAs has trebled to 3.4% in the last four years. High NPAs and losses due to frauds crimp profit margins and prevent banks from lowering interest rates. Clearly, banks need to improve their risk management and increase vigil on high-value loans rather than trying to clean up their books by aggressive NPA write-offs.