Bank fraud allegations must never be levelled lightly
The Reserve Bank of India’s (RBI) latest revision of its Master Circular on Fraud Risk Management in banks and other regulated entities has not come a day too soon. Given the rising incidence of financial frauds, it is imperative that lenders adopt a fool-proof process that does not leave any scope for dishonest borrowers to escape on flimsy technical grounds.
At the same time, it is important that borrowers who have defaulted for genuine business reasons and without fraudulent intent are not penalized or made to suffer the opprobrium justifiably reserved for fraudsters. According to RBI’s latest Annual Report, the number of frauds at banks rose 166% year-on-year in 2023-24, with frauds in loan portfolios accounting for an overwhelming share (84%) in terms of value.
The regulator’s revised circular attempts to strike a balance between defaulting borrowers and banks. It prescribes a much-needed uniform framework to be followed by all regulated entities before a loan account is classified as a ‘fraud’ account.
Crucially, it mandates that banks must give defaulters enough time to respond before marking their accounts as fraudulent. At a minimum, a “detailed Show Cause Notice" must be issued to “Persons, Entities and its Promoters/Whole-time and Executive Directors against whom [an] allegation of fraud is being examined." This must include complete details of transactions, actions or events on the basis of which the declaration and reporting of a fraud is under consideration.
Further, a “reasonable time of not less than 21 days" shall be provided to the concerned party to respond to the charges. This revision of instructions follows a recent Supreme Court ruling which said the principles of natural justice demand that the
. Read more on livemint.com
