Tag: empower

In a revelation, the Reserve Bank of India (RBI) has clarified that banks all over the country are witnessing increasing incidents of fraud due to their failure to adhere to its directives issued from time to time. In an affidavit submitted to the Nagpur bench of Bombay high court, the apex bank further disclosed that it doesn’t have the power to conduct investigations in banking frauds, nor does it have the machinery to do it.

The affidavit was filed while hearing a suo moto PIL for Rs25 crore losses caused to UCO Bank. Rajnish Vyas has been appointed as amicus curiae in the PIL. The embezzlement had taken place due to alleged forgery committed by a bank officer at its Wardha and Hinganghat branches. A division bench comprising justices Vinay Deshpande and Amit Borkar adjourned the hearing by six weeks.

Filed by RBI’s counsel SN Kumar, the affidavit added that as a regulator of the banking system in the country, it issued ‘Master Circular of Frauds’ to sensitize banks against scams and to have deterrent systems. “In spite of guidelines issued from time to time, it was observed that the frauds perpetrated in banks showed an increasing trend, mainly on account of non-adherence or improper implementation of circular directives issued by us. To enable the banks to have all current instructions in one place, a master circular incorporating all guidelines, instructions and directives on the subject was issued on August 1, 2001,” the affidavit mentioned.

Moreover, to enable the Government of India to have the required information on frauds, a suitable reporting system was introduced. Though the circular of March 22, 2002, has prescribed the period of reporting of frauds, it was realized that the banks aren’t following it scrupulously, the apex bank said.

At the RBI governor’s instance, the Central Vigilance Commission (CVC) has set up a high-level group to study incidents of fraud and suggest measures to prevent them. “This group observed that banks are not adhering to the time frame stipulated by RBI for reporting fraud cases. It has suggested that suitable penal action should be taken against defaulting banks. The banks are supposed to report frauds within a week of their detection and then a detailed report needs to be submitted in the prescribed format in the next three weeks,” the affidavit said.

The top bank added that to minimize incidents of fraud in the banking system, it has been making continuous efforts and regularly issuing circulars directing the banks to initiate appropriate action to contain them. “The Banking Regulation Act doesn’t empower RBI to conduct any investigations. The action may be initiated only after the offence is established by the law enforcement agencies. It’s mandatory for the banks to lodge a complaint of frauds with the police,” Kumar said.