RBI slaps penalties

Context

  • The Reserve Bank of India (RBI) 5 feb 2019 said it has imposed a total penalty of Rs 2.2 crore on private sector lender Axis Bank in two separate cases.
  • A penalty of Rs 2 crore has also been imposed on UCO Bank and Rs 1 crore on Syndicate Bank for violation of norms.
  • In another case, a penalty of Rs 20 lakh has been imposed on Axis Bank for contravention of the directions related to detection and impounding of counterfeit notes.
  • The penalty on Syndicate Bank has been imposed for violation of guidelines related to checking fraud and managing risk.
  • The RBI, however, said the action on banks is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

RBI directions on Fraud Classification and Reporting

  • The Reserve Bank of India (RBI) advises banks from time to time about the major fraud-prone areas and the safeguards necessary for the prevention of frauds.
  • RBI also forwards the details of frauds of an ingenious nature not reported earlier so that banks could introduce necessary safeguards by way of appropriate procedures and internal checks.
  • It is continuous process banks report to the Reserve Bank full information about frauds and the follow-up action taken thereon.
  • Since the delays in reporting of frauds and the consequent delay in alerting other banks about the modus operandi and issue of caution advice against unscrupulous borrowers could result in similar frauds being perpetrated elsewhere, Banks are strictly required to adhere to the timeframe fixed in this circular for reporting fraud cases to RBI failing which banks would be liable for penal action as prescribed under Section 47(A) of the Banking Regulation Act, 1949.
  • To ensure uniformity in reporting, frauds have been classified as under, based on the provisions of the Indian Penal Code:
    • Misappropriation and criminal breach of trust.
    • Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property.
    • Unauthorised credit facilities extended for reward or for illegal gratification.
    • Negligence and cash shortages.
    • Cheating and forgery.
    • Irregularities in foreign exchange transactions.
    • Any other type of fraud not coming under the specific heads as above.

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