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Bank frauds: RBI looking into role of forensic audits

The banking authority will also issue norms for declaration and processing of red-flagged accounts.

December 27, 2019 / 09:03 PM IST
Representative Image

Representative Image


The Reserve Bank of India (RBI) is looking into the scope and role of forensic audits for quicker detection of frauds in the banking system, the central bank said in the Financial Stability Report on December 27.


The regulator said that banks have been asked to increase their focus on fraud response plan. To enable this, the RBI will prescribe stricter timelines and 'clear cut' guidance for reporting of frauds.


The banking authority will also issue norms for declaration and processing of red-flagged accounts, the report said.


"Banks are required to set up specialised units to make use of market intelligence and data analytics and also put in place transaction monitoring system. In order to bring clarity, the role and scope of forensic audit along with timelines is also being examined," the central bank said.


Fraud reporting by non-banking finance companies (NBFCs) and Urban Cooperative Banks is also being integrated into RBI's registry database.


In 2019, a massive scam was unearthed in Punjab and Maharashtra Cooperative (PMC) Bank, calling for higher attention to the fraud detection processes in the system. According to the bank's officials, the cooperative bank had managed to hide irregularities from the regulator during annual inspections.


Last year, scams in state-run lenders raised alarms on the quality of governance in these banks.


RBI said that banks are being provided with a list of Early Warning Signals (EWS) to firm up fraud detection and take pre-emptive actions.


The report said that a significant time-lag was observed between the date of occurrence and detection of the frauds in the financial year 2018-19 and first half of 2019-20.


For instance, 97.3 percent of frauds reported in April-September 2019 by value, occurred in previous financial years.


RBI said that loan-related frauds constituted 90 percent of all frauds reported in 2018-19 by value and 97 percent in April-September 2019.

As on September 2019, frauds worth Rs 71,146 crore involving amounts of more than Rs 1 lakh were reported, as compared to Rs 42,228 crore in the June-ended quarter.

Parnika Sokhi
first published: Dec 27, 2019 09:03 pm

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