Flagging instances of loan exposures getting seasoned as non-performing assets (NPAs) for three to four years before borrowers were declared as fraudulent, the Reserve Bank of India has called upon bankers to identify and declare loan accounts as fraud without wasting time.
During FY16, advances-related frauds constituted nearly 92 per cent of the total frauds reported by all banks. This was more pronounced in the case of public sector banks and less in the case of private and foreign banks, said SS Mundra, Deputy Governor, at a recent seminar on ‘Financial Crimes Management’ organised by CAFRAL (Centre for Advanced Financial Research and Learning).
“In almost all the cases, we observed that the exposure had got seasoned as an NPA for three to four years before the borrower was declared as fraudulent. As a consequence, the gap between the date of occurrence and detection has been widening.
“Further, the gap between first bank and the last bank reporting the borrowal account as fraud to the RBI is also very long,” said the Deputy Governor.
While emphasising that ‘fraud’ is a criminal offence, Mundra observed any delay on the part of bankers in initially red-flagging an exposure and subsequently declaring it as a fraud will have far-reaching implications on employee conduct and internal governance standard.
Cautioning that banks and bankers could be charged for abetting the criminal offence, the Deputy Governor said: “My call to you, therefore, is to identify and declare the account as fraud without wasting time.
“The best course of action would be to follow the instructions in letter and spirit and take a responsible and pro-active stand while attending consortium meetings.”
Penal measure
Mundra said as a penal measure borrowers who have committed a fraud in the account are debarred from taking finance from, among others, banks, financial institutions and non-banking finance companies for a period of five years from the date of full payment of the defrauded amount. After this period, it is for individual institutions to take a call on whether to lend to such a borrower.
“Anecdotal evidence and our transaction testing on the ground suggest that this instruction is not always being followed. Recently, we had come across a case where a bank had extended a ‘hand-holding operation’ facility in the case of very large fraud account,” he said.
Cheque cloning
Underscoring that frauds in the area of cheque cloning continue to be one of the areas of concern for the RBI, Mundra said: “We have come across cases where, though the original cheques remained in the custody of the customer, cheques with the same series were presented and en-cashed by fraudsters.”
Referring to the guidelines issued by the RBI on the issue to banks in November 2014, he added that it is necessary that the instructions are followed to prevent fraudulent practices.