Banking Fraud, RBI Circular: Reserve Bank of India (RBI) has issued a master circular to avoid fraud in Indian banks and strengthen fraud risk management.
RBI Circular: Reserve Bank of India (RBI) has issued a master circular to prevent fraud and strengthen fraud risk management in Indian banks. Some major changes have been made in it. In these changes, if any account is involved in fraud related activities, it will be red flagged. Red flag accounts in the banking system will not only be effective in preventing fraud, but also in returning the fraud amount. Along with this, it will also help other banks not to give loans to new red flag accounts.
Every bank will form a special committee, there will be changes in the risk management framework
According to RBI’s circular, every bank will now form a special committee. Its job will be to keep a close eye on the frauds happening in the bank, track them and bring them to the right conclusion. The name of this committee will be Special committee of the board for monitoring and follow up cases of frauds (SCBMF). This committee will find out where the bank’s system was lacking due to which the fraud happened so that the bank’s internal control and risk management framework can be changed accordingly and strengthened.
No fraud complaint will be ignored
According to the circular, every bank will create such a strong system so that any fraud complaint is not ignored and the bank can keep a close eye on the accounts related to fraud. If any account in the bank is associated with any fraudulent activity, then the bank will give an early warning signal in the system so that after a thorough investigation, the account can be red flagged. What kind of signals should these be or which account should be red flagged, every bank will create this framework according to the Risk Management Committee.
It will be easy to identify mule accounts
It is worth noting that due to the early warning signal, it will be easy for banks to monitor and identify mule accounts or accounts whose KYC has not been done, so that fraudsters do not use the banking system for banking fraud. If after proper investigation due to credit or loan, any account is red flagged as per CRILC threshold reporting, then RBI will have to be informed about it within seven days.
