The CAG also mentioned chit funds regulated by the state governments and the non-banking financial companies (NBFCs) as other areas of "big risks" due to their vulnerability to easy frauds.
A "significant" part of the banks' non-performing assets (NPAs) were a result of loans obtained by fraudulent methods, Comptroller and Auditor General (CAG) of India Shashi Kant Sharma said here on Friday.
"There is a significant part of NPAs that amount to fraudulently obtained advances," Sharma said at the Assocham (Associated Chambers of Commerce and Industry of India) conference on financial and corporate frauds.
Sharma also added that a large part of these loans may now be irretrievable as they are likely to have been transferred abroad.
"There is also the belief that a large part of these advances may have been transferred abroad and may never be recovered," he said.
"In recent times, there have been frauds against institutions, frauds committed against banks, especially public sector banks that are struggling. Banking fraud can be related to technological flaws related to both the employees and the customers of the banking system," he added.
The CAG also mentioned chit funds regulated by the state governments and the non-banking financial companies (NBFCs) as other areas of "big risks" due to their vulnerability to easy frauds.
Ten state-run banks suffered losses of over Rs 15,000 crore (over $2 billion) in the fourth quarter of 2015-16 ending March 31, due to provisioning to cover for bad debts. Punjab National Bank, for instance, made an operational profit last year of Rs 12,000 crore, but has now declared a record loss because of such provisioning.
Finance Minister Arun Jaitley earlier said he hoped the bankruptcy code and debt recovery legislation will significantly help the banks deal with stressed assets.
The government has allocated Rs 25,000 crore in 2016-17 for revamp of public sector banks and Jaitley said they "stand by that commitment".