Bank Reforms to Check Frauds

Occurrence of frauds was enabled by laxity in the financial system, and the underlying causes have been systematically dealt with by the Government through comprehensive steps for reduction in occurrence of frauds, and their proactive checking and timely detection. The steps taken in this regard include, inter-alia,the following:

1. Government has issued “Framework for timely detection, reporting, investigation etc. relating to large value bank frauds” to Public Sector Banks (PSBs), for systemic and comprehensive checking of legacy stock of their non-performing assets (NPAs), which provides, inter-alia, that-
2. all accounts exceeding ₹ 50 crore, if classified as NPAs, be examined by banks from the angle of possible fraud, and a report placed before the bank’s Committee for Review of NPAs on the findings of this investigation;
3. examination be initiated for wilful default immediately upon reporting fraud to RBI; and
4. report on the borrower be sought from the Central Economic Intelligence Bureau in case an account turns NPA.
5. Fugitive Economic Offenders Act, 2018 has been enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. The act provides for attachment of property of a fugitive economic offender, confiscation of such offender’s property and disentitlement of the offender from defending any civil claim.
6. PSBs have been advised to obtain certified copy of the passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than ₹ 50 crore and, decide on publishing photographs of wilful defaulters, in terms of Reserve Bank of India (RBI)’s instructions and as per their Board-approved policy and to strictly ensure rotational transfer of officials/employees. The heads of PSBs have also been empowered to issue requests for issue of Look Out Circulars.
7. For enforcement of auditing standards and ensuring the quality of audits, Government has established the National Financial Reporting Authority as an independent regulator.
8. Instructions/advisories have been issued by Government to PSBs to decide on publishing photographs of wilful defaulters, in terms of RBI’s instructions and as per their Board-approved policy, and to obtain certified copy of the passport of the promoters/directors and other authorised signatories of companies availing loan facilities of more than ₹ 50 crore.
9. In order to bring transparency and accountability in the larger financial system, bank accounts of 3.38 lakh inoperative companies were frozen over the last two financial years.

The impact of the above steps is reflected in RBI’s Financial Stability Report (FSR) of June 2019. As per FSR, systemic and comprehensive checking of legacy stock of NPAs of PSBs for frauds has helped unearth frauds perpetrated over a number of years, which is getting reflected in increased number of reported incidents of frauds in recent years compared to previous years. The details of frauds of ₹ 1 lakh and above that occurred during the last three financial years (FYs), reported by PSBs to RBI, as per inputs received from RBI, are as under:

Bank-wise details are at Annex.

Note: Figures cited above for PSBs include those for IDBI Bank Limited, which was recategorised as a private sector bank by RBI with effect from 21.1.2019.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Lok Sabha today.

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Annex

Details of frauds (Based on date of occurrence - Amount Involved ₹ 1 lakh and above) for Public Sector Banks        

 Amounts in crore Rs.

 Source: RBI

 Note: IDBI Bank Limited was recategorised as a private sector bank by RBI with effect from 21.1.2019.

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