The Reserve Bank of India (RBI) ordered banks and other financial institutions to give defaulting borrowers more time before classifying them as “fraud accounts”.
Banks now have to send out show-cause warnings to fraudulent account holders, which will include all of the fraud’s details, according to a release from the RBI.
Read on to find out all the details about his new directive by the RBI!
RBI Directs Banks To Give Defaulters More Time Before Declaring Fraud Accounts
The central bank statement states that defaulters should be given a reasonable amount of time—“not less than 21 days”—to respond to the show-cause notice.
The present regulation was changed in response to a March 2023 ruling by the Supreme Court of India, which stated that banks cannot independently declare bank accounts to be fraudulent without first providing the account holder with an opportunity to make their case.
Borrowers must be given a notice that enables them to contest the audit report’s findings and represent themselves in front of regulated entities in accordance with the natural justice principles that regulated entities must uphold.
Before an account is categorized as a fraud account under the RBI’s master directives, this should take place.
RBI Asks Board of Financial Institutions To Check Fraud Risk Management Policy
The RBI mandates that the board of financial institutions examine its fraud risk management policy once every three years.
The banks must establish a special board committee that permits monitoring and investigating fraud cases further.
Under the overall risk management strategy, banks must set up a framework for Early Warning Signals (EWS) and the flagging of fraud accounts under suspicion for one or more grounds in case of possible fraud.
The latest revision to the master directives requires banks to enhance their EWS system by identifying appropriate possible fraud indications.
According to the RBI announcement, these guidelines have been extended to Regional Rural Banks, Rural Cooperative Banks, and Housing Finance Companies in order to encourage improved fraud risk management frameworks and procedures in these regulated organizations.
