The Reserve Bank of India (RBI) has updated fraud-related rules and issued guidelines to banks, HFCs, and NBFCs.
These new rules mandate following specific procedures before labeling any individual or company as fraudulent.
Data analytics will also have to be used
On Monday, July 15, the RBI issued a master circular clarifying rules on fraud risk management.
The circular mandates that all banks, HFCs, and NBFCs must adhere to these new rules to enhance internal audit and board control.
Additionally, the circular emphasizes the use of data analytics for fraud detection.
The board of banks will have to make a policy
As per the RBI’s latest master circular, it is now mandatory to have a board-approved policy defining the roles and responsibilities of the board and senior management in fraud risk management.
The RBI has updated its rules following a review of the previous master circular. The new circular emphasizes adherence to principles of fairness when determining fraud related to individuals or companies.
It instructs entities to consider the Supreme Court’s decision dated March 27, 2023, particularly in the case involving State Bank of India and Rajesh Agarwal and others.
The policy will have to be reviewed every three years
According to the master circular, individuals or entities receiving show cause notices will have at least 21 days to respond.
The RBI requires banks to issue detailed show cause notices to persons, entities, and their promoters, whole-time and executive directors under investigation for fraud allegations.
Strict adherence to all rules is mandatory before declaring fraud. Furthermore, the fraud risk management policy must be reviewed every three years.
