According to a news report in The Economic Times (ET), banks in India have made a request to the Reserve Bank of India (RBI) to ease the regulations related to reporting loan fraud.
As per the banks, the present guidelines are too rigid, and they have asked for an extension in the time frame for reporting loan fraud to the RBI.
At present, the banks are required to report any instance of loan fraud within seven days to the RBI. However, the banks have requested an additional 30 days to report such cases. The banks believe that the current seven-day period is too short and does not allow them enough time to investigate and report incidents of loan fraud effectively.
Loan fraud is a significant concern for the banking sector, and timely reporting of such incidents is crucial to prevent further damage to the economy and the banking system. The banks have emphasized that the relaxation in the rules on reporting loan fraud will allow them to investigate and report incidents more thoroughly and efficiently.
According to a report citing a knowledgeable senior bank executive, the matter was deliberated upon in a meeting held last month. It was proposed to the RBI that the reporting time should be extended from one week to approximately one month.
Currently, as per the existing framework, banks are required to inform the RBI’s Central Repository of Information on Large Credits (CRILC) about any fraud within a week of the joint lenders’ forum (JLF) announcing that an account is fraudulent.
Following the JLF (Joint Lenders Forum) meeting, each lender must seek internal approvals independently to designate an account as fraudulent. This procedure typically requires more than a week to complete, according to a senior bank executive cited in the report. Additionally, the banks may investigate other accounts belonging to the same borrower that are still active and in good standing.
As per the current regulations, in cases where an account has multiple lenders, a forensic audit must be conducted within three months of authorization from the Joint Lenders Forum (JLF). Once the audit is completed, the banks are required to make a decision on the account’s classification as fraudulent or non-fraudulent within two weeks, according to a report by ET.
However, in some situations, banks may need to investigate other accounts held by the same borrower, which may require additional time. To enhance accountability and ensure effective fraud risk management, the report suggests extending the time period to 30 days. This would provide banks with sufficient time to conduct thorough investigations and make informed decisions regarding the account’s status.
Financial institutions, including NBFCs, are required to notify the CRILC of any exposures of Rs 5 crore or more. The feature was put in place to spot early indications of the financial crisis. Previously, banks had promised to notify the CRILC of any borrowers who refused to participate in their forensic audit in order to aid in the early discovery of fraud.