Banking Frauds

Banking Frauds

Subject: Economy

Section: Monetary Policy

Context:

With the intent of improving consumer protection amid cases of digital frauds, the Reserve Bank of India (RBI) is in discussions to set up a fraud registry to create a database of fraudulent websites, phones and various methods used by fraudsters.

Details:

About 39 per cent of the complaints received by the RBI during last financial year related to digital transactions.

Banking Frauds:

• The primary responsibility for preventing frauds lies with banks themselves.
• The Reserve Bank of India (RBI) has been advising banks from time to time about the major fraud prone areas and the safeguards necessary for prevention of frauds.
• Banks must strictly adhere to the time frame fixed for reporting fraud cases to RBI failing which banks would be liable for penal action prescribed under Section 47(A) of the Banking Regulation Act, 1949.
• Fraud Monitoring Cell at Department of Banking Supervision publishes a directory of officers of banks/Financial Institutions (FI) responsible for reporting of Frauds etc in January every year.
• In order to have uniformity in reporting-frauds have been classified  mainly on the provisions of the Indian Penal Code:
  • Misappropriation and criminal breach of trust.
  • Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property.
  • Unauthorised credit facilities extended for reward or for illegal gratification.
  • Negligence and cash shortages.
  • Cheating and forgery.
  • Irregularities in foreign exchange transactions.
  • Any other type of fraud not coming under the specific heads as above.

Reporting of Frauds to Reserve Bank of India

• Fraud reports should be submitted in all cases of fraud of Rs. 1 lakh and above perpetrated through misrepresentation, breach of trust, manipulation of books of account, fraudulent encashment of instruments like cheques, drafts and bills of exchange, unauthorised handling of securities charged to the bank, misfeasance, embezzlement, misappropriation of funds, conversion of property, cheating, shortages, irregularities, etc.
• Fraud reports should also be submitted in cases where central investigating agencies have initiated criminal proceedings suo motto and/or where the Reserve Bank has directed that they be reported as frauds.
• Banks may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures.

Closing of cases:

Banks should report only such cases as closed where the actions as stated below are complete.

• The fraud cases pending with CBI/Police/Court are finally  disposed of.
• The examination of staff  accountability has been completed
• The amount of fraud has been recovered or written off.
• Insurance claim wherever applicable has been settled.
• The bank has reviewed the systems and procedures, identified the causative factors and plugged the lacunae and the fact of which has been certified by the appropriate authority.