Posts
While the primary responsibility of preventing
frauds lies with banks, RBI has been advising them about the fraud prone areas
and the necessary safeguards. RBI also circulates the details of frauds and
unscrupulous persons who have perpetrated frauds on other banks. Therefore it
is essential that banks report the complete information about frauds and the
follow-up action taken thereon to RBI.
The MD/CEOs of banks must provide focus on the
"Fraud Prevention and Management Function".
The fraud risk management, fraud monitoring and
fraud investigation function must be owned by the bank's CEO, Audit Committee
of the Board and the Special Committee of the Board.
Banks may frame internal policy for fraud risk
management and fraud investigation function.
Banks are required to send the Fraud Monitoring
Returns (FMR) and data to RBI. Banks should nominate an official
of the rank of General Manager who will be responsible for submitting all the
returns.
CLASSIFICATION
OF FRAUDS
Frauds have been classified as under, based mainly
on the provisions of the IPC:
a)
Misappropriation and criminal breach of
trust.
b)
Fraudulent encashment through forged
instruments, manipulation of books of account or through fictitious accounts
and conversion of property.
c)
Unauthorised credit facilities extended
for reward or for illegal gratification.
d)
Negligence and cash shortages.
e)
Cheating and forgery.
f)
Irregularities in foreign exchange
transactions.
g)
Any other type of fraud not coming under
the specific heads as above.
Cases
of 'negligence and cash shortages' and ‘irregularities in foreign exchange
transactions’ are to be reported as fraud if the intention to defraud is
suspected.
However, the following cases will be treated as
fraud and reported accordingly even where fraudulent intention is not suspected:
(b)
cases of cash shortage more than
10,000/- and
(c)
cases of cash shortage more than 5,000/-
if detected by management / auditor/ inspecting officer and not reported on the
day of occurrence.
Banks need not furnish FMR 1 return for cases below ₹1 lac.
However, in such cases banks should enter data through the FRMS package
individually in FMR 1 format which will get captured in FMR 2 return and will
form a part of the consolidated database for the respective bank. In respect of
frauds above ₹1 lac the
following procedure may be adopted.
Name of the return
|
Amount
involved in the fraud
|
Medium
in which to be reported
|
To whom it should
be
reported
|
Timeline
for reporting
|
Remarks
|
FMR 1
Report on actual or suspected Frauds
|
₹1 lac and above
|
Soft copy
|
CFMC, Bengaluru.
|
Within 3 weeks of detection
|
|
-do-
|
1 lac and above - 50 lac
|
Hard copy
|
1.To the RO of RBI, Department of Banking Supervision under whose jurisdiction the branch is located.
2. To the RO, DBS / SBMD under whose jurisdiction
the Head Office of the bank is
located.
|
-do-
|
List of banks under the Supervisory
purview of Senior Supervisory Mangers and Small Bank Monitoring Division given in Annex I.
of master circular
|
Where the fraud has taken place
is located or to the SSM of the Bank.
|
|||||
-do-
|
₹50 lac and above.
|
Hard copy
|
1. CFMC Bengaluru
2. RO of RBI (DBS) / SBMD under
whose jurisdiction the head office of
the bank falls or the SSM of
the bank.
|
-do-
|
-do-
|
Flash report-
in addition to
FMR 1
|
₹1 Cr and
above
|
Hard copy
|
1.Through a DO Letter addressed to
the PCGM/
CGM-in-Charge, DBS RBI, Central Office, Mumbai.
2. Copy to the RO of RBI under whose
jurisdiction the bank's branch, is functioning and RO of RBI (DBS) / SBMD under
whose jurisdiction The head office of
the bank falls or the SSM of the bank.
|
Within a week of such frauds coming
to the notice of the bank’s head office
|
Should include amount involved, nature of fraud, modus operandi in brief, name of the
branch, names of parties involved, their
constitution names of proprietors/ partners and directors, names of officials involved and lodging of complaint
with police/CBI.
|
FMR 2
|
Quarterly report on frauds outstanding
|
Soft copy only
|
CFMC Bengaluru
|
Within 15 days of the end of the
quarter to which it relates
|
Nil report to be submitted if no fraud is outstanding.
|
FMR 3
|
Case-wise quarterly progress reports
on Frauds
involving 1 lac and
above
|
Soft copy only
|
CFMC Bengaluru
|
Within 15 days of the end of the
quarter to which they relate.
|
Nil report to be submitted if there
are no frauds above 1 lac outstanding.
|
In
respect of frauds in borrowal accounts, additional information under Part B of
FMR 1 should also be furnished. Banks should ensure that the data furnished is
complete and up-to-date. In case sufficient data is not available at the time
of reporting in FMR-1, bank may indicate as “no particulars to be reported” or
“details not available at present” etc. Subsequently, banks must collect the
data and report it through FMR 3 on quarterly basis.
Fraud
reports should be submitted where central investigating agencies have initiated
criminal proceedings suo moto or where RBI has directed the reporting of such
cases as frauds.
Banks should
report frauds perpetrated in their subsidiaries and affiliates in FMR-1 format
in hard copy only. Such frauds should, however, not be included in the report
on outstanding frauds and the quarterly progress reports. Such frauds will also
not be entered in the FRMS package. In case the subsidiary/ affiliate is an
entity which is regulated by RBI and is required to report independently, the
parent bank need not furnish the hard copy of the FMR 1 statement.
Banks
having overseas branches should report all frauds perpetrated at such branches
to RBI.
Central
Fraud Monitoring Cell (CFMC), located at Bengaluru will publish a directory of
officers responsible for reporting of Frauds etc. All banks/FIs
should furnish to the CFMC any changes in the names of such officials.
QUARTERLY
RETURNS
Report
on Frauds Outstanding - FMR 2
The total number and amount of fraud cases reported
during the quarter as shown in Parts B and C of the return should tally with
the totals of columns 4 and 5 in Part - A of the report.
Banks should furnish a certificate, that all
individual fraud cases of ₹ 1lac and above, reported to RBI
in FMR 1, have also been put up to the bank’s Board and have been incorporated
in FMR 2. A ‘Nil’ report should be submitted if there are no frauds
outstanding.
Progress
Report on Frauds - FMR 3
Frauds where there are no developments during a quarter
with a brief description including name of branch and date of reporting may be
furnished in Part-B of FMR 3. A ‘Nil’ report should be submitted if there are
no outstanding frauds above Rs.1 lac.
DELAYS
IN REPORTING OF FRAUDS
Delays in reporting of frauds and submission of incomplete
reports are to be avoided. Banks must fix staff accountability in respect of such
delays.
Delay in reporting of frauds and
the consequent delay in alerting other banks about the modus operandi and issue
of caution advices could result in similar frauds elsewhere. Banks should,
therefore, adhere to the fixed timeframe, failing which they would be liable
for penal action u/s 47(A) of the BR Act, 1949.
REPORTS
TO THE BOARD
Banks should ensure that all frauds of ₹ 1 lac
and above are reported to their Boards immediately on detection. Such reports
should take note of the failure on the part of the branch officials and
controlling authorities, and give details of action initiated against them.
Quarterly
Review of Frauds
Information relating
to frauds for the quarters ending June, Sep and
Dec may be placed before the Audit Committee of the Board during the month
following the quarter to which it pertains.
These should be accompanied by supplementary
material analysing statistical information and details of each fraud so that
the Committee may contribute effectively in regard to the punitive or
preventive aspects of frauds.
A separate review for the quarter ending March is
not required in view of the prescribed Annual Review for the year-ending March.
Annual
Review of Frauds
Banks should conduct an annual review and place a
note to the Board for information before the end of the next quarter..
Such reviews may be preserved for verification by the RBI’s inspecting
officers.
The main aspects to be taken into
account while making such a review may include:
(a)
Whether the systems are adequate to detect
frauds within the shortest possible time.
(b)
Whether frauds are examined from staff
angle and reported to the Vigilance Cell for further action in the case of
public sector banks.
(c)
Whether deterrent punishment is meted
out to the persons found responsible.
(d)
Whether frauds have taken place because
of laxity in following the systems and procedures and, if so, whether effective
action has been taken to ensure that the systems and procedures are
scrupulously followed.
(e)
Whether frauds are reported to local
Police or CBI for investigation.
The annual reviews should also include:
(b)
No. and amt of frauds detected during
the year as compared to the previous 2 yrs.
(c)
Analysis of frauds and also the
different business areas indicated.
(d)
Modus operandi of frauds reported during
the year along with their present position.
(e)
Detailed analysis of frauds of Rs. 1 lac
and above.
(f)
No. of cases & amount where staff
are involved and the action taken against them.
(g)
Region-wise/Zone-wise/State-wise
break-up of frauds and amount involved.
(h)
Time taken to detect frauds.
(i)
Position with regard to frauds reported
to CBI/Police.
(j)
Number of frauds where final action has
been taken and cases disposed of.
(k)
Preventive/punitive steps taken by the
bank during the year to minimise frauds.
Banks may ensure to place the copy of the circular
on modus-operandi issued by them for alerting their branches on specific frauds
before the ACB in its periodical meetings.
Special
committee of the Board
Banks are required to constitute
a Special Committee of the Board for monitoring and follow up of cases of
frauds (SCBF) involving amounts of ₹1 Crore and above. This Committee
may be constituted with five members of the Board of Directors, consisting of
MD & CEO in case of PSBs and MD in case of SBI, its Associates and private sector
banks, two members from ACB and two members from the Board excluding RBI
nominee. The periodicity of the meetings may be decided according to the number
of cases involved. In addition, the Committee should meet
and review as and when a fraud involving an amount of ₹1 Crore
and above comes to light.
The major functions of the Special Committee would
be to monitor and review all the frauds of ₹1 Crore and above so as to:
• Identify
the systemic lacunae and put in place measures to plug the same.
• Identify
the reasons for delay in detection & reporting to top management and RBI.
• Monitor
progress of CBI/Police investigation and recovery position.
• Ensure
that staff accountability is examined and action is completed quickly.
• Review
the efficacy of the remedial action taken to prevent recurrence of frauds, such
as strengthening of internal controls.
The banks may define the
processes for implementation of the Committee's directions in a policy document
which may enable a dedicated outfit of the bank to implement the directions in
this regard.
The detailed guidelines for
private sector and foreign banks were issued on May 26, 2011 to address all
issues arising out of lapses in the functioning, especially relating to
corruption, malpractices, frauds etc. These guidelines are
aimed at bringing uniformity and rationalization in the function of internal
vigilance.
CASES
OF ATTEMPTED FRAUD
Banks need not report cases of attempted frauds of ₹1 crore and
above to RBI. However, banks should report on individual cases of ₹1 crore and
above before the ACB. The report should cover :
•
The modus operandi of the attempted
fraud.
•
How the attempt did not materialize into
fraud or how the attempt failed.
•
The measures taken by the bank to
strengthen the existing systems and controls.
•
New systems and controls put in place in
the area where fraud was attempted.
Further, a consolidated review of such cases
detected during the year containing information such as area of operations
where such attempts were made, effectiveness of new processes and procedures
put in place during the year, trend of such cases during the last three years,
need for further change in processes and procedures, if any, etc. as on March
31 every year may be put up to the ACB within three months of the end of the
relative year.
Banks will report to CFMC, RBI and the respective
Regional offices of the DBS/SBMD/SSM, the details of fraud cases of ₹1 lac and
above closed along with reasons for the closure after completing the process as
given below.
Fraud cases closed during the quarter are required
to be reported quarterly through FMR 3 return and cross checked with relevant
column in FMR 2 return before sending to RBI.
Banks should report only such cases as closed where
the actions as stated below are complete and prior approval is obtained from
the respective Regional Offices of DBS/SSM/SBMD.
i.
The fraud cases pending with
CBI/Police/Court are finally disposed of.
ii.
The examination of staff accountability
has been completed.
iii.
The amount of fraud has been recovered
or written off.
iv.
Insurance claim wherever applicable has
been settled.
v.
The bank has reviewed the systems and
procedures, identified as the causative factors and plugged the lacunae and the
fact of which has been certified by the appropriate authority.
Banks should also pursue CBI for final disposal of
pending cases especially where the banks have completed staff side action.
Similarly, banks may follow up with the police authorities and/or court for
final disposal of fraud cases.
a) The
investigation is on or charge sheet has not been filed in the Court for more
than three years from the date of filing of FIR or
b)
The trial in the courts has not started
or is in progress.
The banks should follow the guidelines relating to
seeking prior approval for closure from the RO of DBS under whose jurisdiction
the Head Office of the bank is located or the SSM/SBMD and follow up of such
cases after closure
GUIDELINES
FOR REPORTING FRAUDS TO POLICE/CBI
In dealing with cases of fraud, banks should not
merely be concerned about recovering the amount, but should be motivated by
public interest and the need for ensuring that the guilty persons are punished.
Therefore the following cases should be referred to the State Police or to the
CBI as detailed below:
Category
of bank
|
Amount
involved in the fraud
|
Agency
to whom complaint should be lodged
|
Remarks
|
Private Sector/ Foreign Banks
|
₹10000 and above
|
State
Police
|
If committed by staff
|
₹1 lac and above
|
State
Police
|
If committed by outsiders on
their own and/or
with the connivance of bank staff/officers.
|
|
₹10
million and above
|
In
addition to State Police,
SFIO, Ministry of Corporate
Affairs, Government of India. Second Floor, Paryavaran Bhavan, CGO Complex,
Lodhi Road, New Delhi 110 003.
|
Details of the fraud are to be
reported to SFIO in FMR 1Format
|
|
Public Sector Banks
|
Below ₹30 million
1. Above `10,000/-
but below 0.1 million
|
State Police To
the local police station
|
To be lodged by the bank
branch concerned
|
2. `0.1 million and above involving outsiders and
bank staff
|
To the State CID/Economic
Offences Wing of the State concerned
|
To be lodged by the Regional
Head of the bank concerned
|
|
₹30 million and above and up to ₹250 million
|
CBI
|
To be lodged with Anti
Corruption Branch of CBI (where staff involvement is prima facie evident)
Economic Offences Wing of CBI
(where staff involvement is prima facie not evident)
|
|
More than ₹250 million and up to ₹500 million
|
CBI
|
To be lodged with Banking
Security and Fraud Cell (BSFC) of CBI (irrespective of the involvement of a
public servant)
|
|
More than `500 million
|
CBI
|
To be lodged with the Joint
Director (Policy) CBI, HQ New Delhi
|
All fraud
cases below ₹10,000/-
involving bank officials, should be referred to the Regional Head, who would
scrutinize each case and direct the branch on whether it should be reported to
the local police station for further legal action.
CHEQUE
RELATED FRAUDS, PRECAUTIONS TO BE TAKEN AND REPORTING TO RBI AND THE POLICE
Banks were advised to review and strengthen the
controls in the cheque presenting/passing and account monitoring processes and
to ensure that all guidelines are followed. Banks were also given an
illustrative list of some of the measures they may follow in this regard viz.
I.
Ensuring the use of 100% CTS - 2010
compliant cheques.
II.
Strengthening the infrastructure at the
cheque handling Service Branches and bestowing special attention on the quality
of equipment and personnel posted for CTS based clearing.
III.
Ensuring that the beneficiary is KYC
compliant.
IV. Examination
under UV lamp for all cheques beyond a threshold of say, Rs.2 lac.
V.
Checking at multiple levels, of cheques
above a threshold of say, Rs.5 lac.
VI. Close
monitoring of credits and debits in newly opened transaction accounts based on
risk categorization.
Banks may also consider the following preventive
measures for dealing with suspicious or large value cheques:
a)
Alerting the customer by a phone call
and getting the confirmation.
b)
Contacting base branch in case of
non-home cheques.
The
above may be resorted to selectively if not found feasible to be implemented systematically.
Banks are advised to take measures to ensure that
the confidential information viz., customer name / account number / signature,
cheque serial numbers etc. are neither compromised nor misused. Due care and
secure handling is to be exercised in the movement of cheques from the time
they are tendered.
Reporting of frauds involving forged instruments
including truncated instruments will be done by the paying banker. In such
cases the presenting bank will be required to immediately hand over the
instrument to paying bank as and when demanded to enable it
to file an FIR and report the fraud to RBI.
However, in the case of collection of an instrument
which is genuine but the amount is collected fraudulently, the collecting bank,
which is defrauded will have to file both the fraud report with the RBI and
complaint with the police.
In case of collection of fake cheque involving two
or more branches of the same bank, the branch where the cheque has been
encashed, should report the fraud to its Head Office. Similarly where such a
cheque is encashed involving two or more branches under CBS, the branch which
has released the payment should report the fraud to the Head Office.
Thereafter, Head Office of the bank will file the fraud report with RBI and
also file the Police complaint.
LOAN
FRAUDS - NEW FRAMEWORK
Based on the recommendations of an Internal Working
Group, a framework for dealing with loan frauds was put in place
Objective
of the framework
The objective is to direct the focus of banks regarding
prevention, early detection, prompt reporting and timely initiation of the
staff accountability proceedings. It ensures that the normal conduct of
business and the risk taking ability of the bank is not adversely impacted and
no new and onerous responsibilities are placed on the banks.
In order to achieve this objective, the framework
has stipulated time lines with the action incumbent on a bank. The time lines /
stage wise actions in the loan life-cycle are expected to compress the total time
taken by a bank to identify a fraud and aid more effective action by the law
enforcement agencies.
Early
Warning Signals (EWS) and Red Flagged Accounts (RFA)
A Red Flagged Account (RFA) is one where a suspicion
of fraud is indicated by Early Warning Signals (EWS). A bank cannot afford to
ignore such EWS but must instead use them as a trigger to launch a detailed
investigation into a RFA.
Banks may adopt relevant signals based on their
experience, client profile and business models. The EWS so compiled would form
the basis for classifying an account as a RFA.
The threshold for EWS and RFA is an exposure of Rs.50
Cr or more at bank level. All accounts beyond Rs.50 Cr classified as RFA or
‘Frauds’ must also be reported on the CRILC data platform
together with the date of classification. This requirement is in addition to
the reporting to RBI.
The modalities for monitoring loan frauds below Rs.50
Cr, is left to the discretion of banks. However, banks may report all
identified accounts to CFMC, RBI as per the existing cut-offs.
The tracking of EWS in loan accounts must be
integrated with the monitoring process. In large accounts it is necessary to
undertake a detailed study of the Annual Report as a whole, particularly the
Board Report, Managements’ Discussion, Analysis Statement and the details of
related party transactions in the notes to accounts. The officer responsible
for the operations in the account, should observe and report manifestations of
EWS to the Fraud Monitoring Group (FMG) or any other group constituted by the
bank immediately. Such officers may be held responsible for non-reporting or
delays in reporting.
FMG should report loan accounts of Rs.50 Cr and
above where EWS are observed, together with the decision to classify them as
RFAs or otherwise to the CMD/CEO every month.
A report on the RFA accounts may be put up to the SCBF
providing a synopsis of the remedial action taken and its current status.
Early
Detection and reporting
Banks tend to report a fraud only when they exhaust
the chances of further recovery. Delays in reporting may result in similar
frauds being perpetrated elsewhere. It also delays action against the
unscrupulous borrowers which increases the loss arising out of the fraud.
Frauds in loan accounts can be prevented by having a
robust appraisal and an effective monitoring mechanism. In order to strengthen
the monitoring processes, inclusion of the following checks during the
different stages of the loan life-cycle may be carried out:
a)
Pre-sanction: The
information collected on the potential borrowers by the Risk Management Group
(RMG) from the public domain could be made a part of the pre sanction checks
and used as an input by the sanctioning authority. Banks may keep the record of
such pre-sanction checks as part of the sanction documentation.
b)
Disbursement: Checks
by RMG during the disbursement stage may focus on the adherence to the
terms and conditions of sanction, rationale for allowing dilution of these
terms and conditions, level at which such dilutions were allowed, etc. The
sanctioning authority may specify certain conditions as ‘core’ which should not
be diluted. The RMG may immediately flag the non-adherence of core stipulations
to the sanctioning authority.
c)
Annual review: The
aspects of diversion of funds in an account, adequacy of stock vis-a-vis stock
statements, stress in group accounts, etc., must be commented upon at the time
of review. Besides, the RMG should track market developments relating to the
major clients and provide inputs to the credit officers.
Staff empowerment: Employees
should be encouraged to report fraudulent activity under the Whistle Blower
Policy of the bank. The FMG may ‘hear’ the concerned employee in order to
obtain necessary clarifications. Protection should be available
to such employees under the policy so that the fear of victimisation does not
act as a deterrent.
Role of Auditors: Auditors
may come across transactions or documents that indicate the possibility
of fraud. In such a situation, the auditor may immediately bring it to the
notice of the top management and if necessary to the ACB.
Incentive for Prompt Reporting: When an
account is classified as fraud, banks should make 100% provisions
immediately, irrespective of the value of security. However, in case a bank is
unable to make the entire provision in one go, it may do so over four quarters
provided there is no delay in reporting. In case of delays,
the banks under Multiple Banking Arrangements (MBA) or consortium are required
to make the provision in one go. Delay, for the purpose, would mean that the
fraud was not flashed to CFMC, RBI or reported on the CRILC platform, within a
period of one week from its (i) classification as a fraud through the RFA route
which has a maximum time line of six months or (ii) detection/declaration as a
fraud ab initio by the bank.
Bank as
a sole lender 
Where the bank is the sole lender, the FMG will decide
whether an account in which EWS are observed should be classified as a RFA or
not. This exercise should be completed within a month of the EWS being noticed.
In case the account is classified as a RFA, the FMG will stipulate the nature
and level of further investigations or remedial measures
necessary to protect the bank’s interest within six months.
The bank may use external
auditors, including forensic experts or an internal team for investigations
before taking a final view on the RFA. Within a period of six months, banks
would either lift the RFA status or classify the account as a fraud.
A report on the RFA accounts may
be put up to the SCBF with the observations/decision of the FMG. The report may
list the irregularities observed and provide a synopsis of the investigations and
remedial action proposed by the FMG together with the current status.
Lending
under Consortium or Multiple Banking Arrangements
Due to lack of a formal arrangement for exchange of
information among various lending banks/FIs, unscrupulous borrowers enjoying
credit facilities under "multiple banking arrangement” after defrauding
one bank, continue to enjoy the facilities with other financing banks. They
also use accounts maintained at other banks to siphon off funds from the bank
on which the fraud is being perpetrated. In some cases, the securities offered
by the borrowers to different banks are the same.
In view of this, all the banks under 'multiple
banking' arrangement should take co-ordinated action for legal actions,
recovery follow up, exchange of details on modus operandi, achieving
consistency in data / information on frauds reported to RBI. Therefore, bank
which detects a fraud should immediately share the details with all other
banks.
In case of consortium
arrangements, individual banks must conduct their own due diligence and also
monitor the end use of funds independently. Regarding monitoring of Escrow
Accounts, the details may be worked out by the consortium and duly documented. Any
major concerns from the fraud perspective should be shared with other lenders
immediately.
The initial decision to classify any account as RFA
or Fraud will be at the individual bank level and it would report the RFA or
Fraud status on the CRILC platform. Thereafter, within 15 days, the bank which
has detected the fraud would ask the consortium leader or the largest lender to
convene a meeting of the JLF. The meeting of the JLF must be convened within 15
days of the receipt of request. In case there is a broad agreement, the account
would be classified as a fraud; or else it will be done based on the majority
with at least 60% share in the total lending. The account would be red flagged
by all the banks and subjected to a forensic audit initiated by the consortium
leader or the largest lender under MBA. All banks, as part of the consortium or
multiple banking arrangement, would share the costs and provide the necessary
support for such an investigation.
The forensic audit must be completed within a period
of three months from the date of authorizing the audit. Within 15 days of
completion, the JLF will reconvene and decide on the status of the account,
either by consensus or majority rule as specified above. If
the account is to be classified as fraud, the RFA status would change to Fraud
in all banks and reported to RBI and on the CRILC platform within a week of the
said decision.
Besides, within 15 days of the RBI reporting, the
bank initiating the forensic audit would lodge a complaint with the CBI on
behalf of all banks in the consortium/MBA.
The overall time allowed for the entire exercise is
six months from the date when the first member bank reported the account as RFA
or Fraud on the CRILC platform.
Staff Accountability
In case of NPAs, banks must initiate and complete a
staff accountability exercise within six months from the date of classification
as a Fraud. The role of sanctioning official may also be covered under this
exercise. The report on completion of this exercise and action taken may be
placed before the SCBF and intimated to the RBI at quarterly intervals.
All fraud cases are to be segregated into vigilance
and non-vigilance. Only vigilance cases should be referred to the investigative
authorities. Non-vigilance cases may be investigated and dealt with at the bank
level within a period of six months.
Where very senior executives of
the bank are involved, the Board / ACB/ SCBF may initiate the process of fixing
staff accountability.
Both the criminal and domestic
enquiry should be conducted simultaneously.
Filing
Complaints with Law Enforcement Agencies
Banks
are required to lodge the complaint with the law enforcement agencies
immediately on detection of fraud. Delays may result in the loss of relevant documents,
non-availability of witnesses, borrowers absconding and the money trail getting
cold in addition to asset stripping by the fraudulent borrower.
Banks should establish a nodal
point and nodal officer for filing all complaints with the CBI on behalf of the
bank and serve as the single point for coordination and redressal of
infirmities in the complaints.
The complaint should be drafted
properly and be vetted by a legal officer. Banks sometimes file complaints with
CBI / Police on the grounds of cheating, misappropriation of funds, diversion
of funds etc., without classifying the accounts as fraud. Since such grounds constitute
the basis for classifying an account as fraud, banks may classify such accounts
as frauds and report the same to RBI.
Penal
measures for fraudulent borrowers
In general, the penal provisions as
applicable to wilful defaulters would apply to the fraudulent borrower with
respect to raising funds from the banking system or from the capital markets.
In particular, borrowers who have defaulted and also committed a fraud would be
debarred from availing bank finance for a period of five
years from the date of full payment of the defrauded amount. After this period,
it is for individual institutions to take a call on whether to lend to such a
borrower. The penal provisions would apply to non-whole time directors only in
rarest of cases based on conclusive proof of their complicity.
No restructuring or grant of
additional facilities may be made in the case of RFA or fraud accounts.
No compromise settlement
involving a fraudulent borrower is allowed unless the conditions stipulate that
the criminal complaint will be continued.
In addition to above borrower- fraudsters, third
parties such as builders, warehouse/cold storage owners, motor vehicle/tractor
dealers, travel agents, etc. and professionals such as architects, valuers,
chartered accountants, advocates, etc. are also to be held accountable if they
have played a vital role in credit sanction/disbursement or facilitated the
perpetration of frauds. Banks are advised to report to IBA the details of such
third parties.
Before reporting to IBA, banks
have to satisfy themselves of the involvement of concerned third parties and
also provide them with an opportunity of being heard.. On the basis of such
information, IBA would prepare caution lists of such parties for circulation
among the banks.
Banks should report instances of
bank robberies, dacoities, thefts and burglaries to the following authorities
immediately on their occurrence.
a)
CFMC, Bengaluru
b)
RO of DBS/SSM/SBMD under whose
jurisdiction the Head Office of the bank falls.
c)
RO of DBS under whose jurisdiction the
affected bank branch is located to enable them to take up the issues regarding
security arrangements in the affected branch during the State Level Security
Meetings.
d)
The Security Adviser, Central Security
Cell, RBI, Mumbai - 400 001.
e)
Ministry of Finance, Department of
Financial Services, New Delhi-110 001.
The
report should include details of modus operandi and other information.
Banks should also submit to CFMC,
Bengaluru a quarterly consolidated statement- FMR 4 covering all cases
pertaining to the quarter within 15 days of the end of the quarter to which it
relates.
Banks, which do not have any instances of theft,
burglary, dacoity and / or robbery to report during the quarter, may submit a nil
report.
Based on the
Master Circular of 1/7/15.
No comments:
Post a Comment