RBI issues new directions to banks for recovering money lost in frauds,

Reserve Bank of India (RBI) has issued new directions to banks and other regulated entities to ensure that money lost through fraudulent transactions is recovered and not written off as non-performing asset (NPA). 

RBI has issued new master directions to banks and other regulated entities asking them to strengthen regulatory framework through creation of system for early detection and prevention of fraud.

While regulated entities have already created a  regulatory ecosystem, RBI wants them to strengthen the framework on Early Warning Signals (EWS) and Red Flagging of Accounts (RFA) for early detection and prevention of frauds  and timely reporting to internal supervisors and law enforcement agencies. 

Further, RDI directions have mandated creation of separate units for data analytics and market intelligence in order to strengthen the risk management systems.

As per the new directions, if any account is involved in fraud related activities, it will be red flagged. This system will not only be effective in preventing fraud, but also in returning the fraud amount. Besides, it will help other banks not to give loans to new red flag accounts.

Every bank will now have to form a special committee to keep tab on the frauds happening in the bank, track them and resolve the issue by bringing the perpetrators to book.

The Special committee of the board for monitoring and follow up cases of frauds (SCBMF) will find out the shortcomings in the bank’s internal control and risk management system so that the  framework can be changed and strengthened.

The special committee will ensure that no fraud complaint is ignored and that the bank keeps a close eye on the accounts related to fraud. If any account is seen to be associated with any fraudulent activity, then the bank will give an early warning signal so as to investigate and detect the fraud and red flag or even mute the account.

It will be easy for banks to monitor, identify and mule accounts or accounts whose KYC has not been done, so that fraudsters do not use the banking system for banking fraud.

Banks and other regulated entities, after proper investigation, should also inform the RBI about the fraud within seven days.