RBI issues framework to check loan frauds
Updated: May 08, 2015 12:14:55pm
Mumbai, May 8 (KNN) Concerned over the increased incidents of loan frauds, Reserve Bank of India (RBI) has issued a framework for banks to help them in the prevention, early detection and reporting of such frauds.
The apex bank has asked lenders to ‘red-flag’ any suspicious activity in this regard. RBI has introduced a concept called Red Flagged Account (RFA), which are accounts where the suspicion of fraudulent activity is thrown up by the presence of one or more early warning signals).
RBI has directed the banks to make full provisioning of the amount at stake when a fraud is detected, though if there is no delay in reporting it, they may amortise this over four quarters. They are also to immediately report this to the Central Repository of Information on Large Credits.
RBI said that a time-bound framework must be established but in a way that does not impact the bank’s business or its risk-taking ability, while also ensuring that no new and onerous responsibilities are placed on the banks.
The central bank has highlighted a list of 45 early warning signals, which may be adopted by a bank.
The list includes unpaid loans to multiple banks, bouncing of cheques, raids by tax or excise duty officials, and frequent change in the scope of project to be undertaken. High value electronic payments to unrelated parties have also been flagged off as a warning signal.
The RBI also asked banks to sensitize their employees to the risk of fraud and detect early warning signals. Such signals should be promptly reported to the Fraud Monitoring Group or any other group constituted by the bank for the purpose immediately, the central bank stated.
To ensure that the exercise remains meaningful, such officers may be held responsible for non-reporting or delays in reporting, RBI said.
“The most effective way of preventing frauds in loan accounts is for banks to have a robust appraisal and an effective credit monitoring mechanism during the entire life-cycle of the loan account,” RBI said.
Banks have been asked to initiate and complete a staff accountability exercise within six months from the date of classification as a fraud. They're required to register a complaint with law enforcement agencies immediately on detection of fraud.
If an account is so identified, the penal provisions as applicable to wilful defaulters would apply to the fraudulent borrower. That is, the promoter directors and other whole time directors are to be barred from raising funds, from banks or from the capital markets. (KNN Bureau)
The apex bank has asked lenders to ‘red-flag’ any suspicious activity in this regard. RBI has introduced a concept called Red Flagged Account (RFA), which are accounts where the suspicion of fraudulent activity is thrown up by the presence of one or more early warning signals).
RBI has directed the banks to make full provisioning of the amount at stake when a fraud is detected, though if there is no delay in reporting it, they may amortise this over four quarters. They are also to immediately report this to the Central Repository of Information on Large Credits.
RBI said that a time-bound framework must be established but in a way that does not impact the bank’s business or its risk-taking ability, while also ensuring that no new and onerous responsibilities are placed on the banks.
The central bank has highlighted a list of 45 early warning signals, which may be adopted by a bank.
The list includes unpaid loans to multiple banks, bouncing of cheques, raids by tax or excise duty officials, and frequent change in the scope of project to be undertaken. High value electronic payments to unrelated parties have also been flagged off as a warning signal.
The RBI also asked banks to sensitize their employees to the risk of fraud and detect early warning signals. Such signals should be promptly reported to the Fraud Monitoring Group or any other group constituted by the bank for the purpose immediately, the central bank stated.
To ensure that the exercise remains meaningful, such officers may be held responsible for non-reporting or delays in reporting, RBI said.
“The most effective way of preventing frauds in loan accounts is for banks to have a robust appraisal and an effective credit monitoring mechanism during the entire life-cycle of the loan account,” RBI said.
Banks have been asked to initiate and complete a staff accountability exercise within six months from the date of classification as a fraud. They're required to register a complaint with law enforcement agencies immediately on detection of fraud.
If an account is so identified, the penal provisions as applicable to wilful defaulters would apply to the fraudulent borrower. That is, the promoter directors and other whole time directors are to be barred from raising funds, from banks or from the capital markets. (KNN Bureau)
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