The Reserve Bank of India (RBI) on Monday issued three revised master directions on fraud risk management for Regulated Entities such as commercial banks including regional rural banks and All India Financial Institutions; urban, state and central cooperative banks; and non-banking finance firms and housing finance companies.
“These master directions have been prepared based on a comprehensive review of the earlier Master Directions, circular and emerging issues. These Master Directions are principle-based and strengthen the role of the Board in overall governance and oversight of fraud risk management in the Regulated Entities (REs),” the RBI said in a circular.
“These directions also emphasise the need for instituting robust internal audit and controls framework in the REs,” it added.
The directions mandate REs to comply with principles of natural justice in a time-bound manner before classifying persons/entities as fraud, taking into account the March 2023 Supreme Court Judgment on State Bank of India versus Rajesh Agarwal.
“The framework on Early Warning Signals and Red Flagging of Accounts has been strengthened for early detection and prevention of frauds in the REs and timely reporting to law enforcement agencies and supervisors. Further, requirement for data analytics and market intelligence unit for strengthening risk management systems have been mandated,” the RBI said.
The RBI withdrew 36 existing circulars on the subject following the revisions, to rationalise rules and reduce compliance burden, the regulator said..
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