Page 31 - Banking Finance January 2020

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reported by any bank together with details of the entities
involved in the perpetration of such frauds in the form of
confidential caution advices. This also serves to encourage
a periodic review of existing guidelines, identify loopholes
on the basis of caution advice, if any, and initiate corrective
steps. It has also issued instructions requiring banks to report
negligence or involvement of entities like chartered
accountants, valuers and advocates resulting in perpetration
of frauds, to their professional oversight bodies for
appropriate deterrent action.

Today, most banks have put in place a system of checking
the credit history of a borrower through credit information
companies like the CIBIL. Considering that fraudulent
RBI and Government Initiatives: borrowers could still seek credit from the banking system
Besides suggesting specific preventive measures for frauds even after defrauding one bank, it calls for setting up of
relating technology, advances and deposits as discussed 'fraud registry' on the lines of credit information bureau.
above, both the RBI and the Government have taken Further, fraudulent borrowers are prohibited to get access
several initiatives. To elaborate, RBI advised banks to to banking facilities.Government, on its part, enacted
strengthen the role of the Chairmen and Managing Prevention of Anti Money Laundering Act, 2002 for
Directors(CMDs)/Chief Executive Officers (CEOs), Audit preservation of records and reporting of certain information
Committee of the Board (ACB) and Special Committee of such as cash transactions of more than Rs 10 lakhs, fake
the Board to evolve robust fraud risk management systems notes, suspicious transactions such as those relating to
and implement effective fraud risk mitigating measures. terrorist activities to RBI.

They are responsible for effective investigation of fraud cases In addition, it has changed the norms to reduce the liability
and prompt and accurate reporting to appropriate of customers with regard to card related frauds. The liability
regulatory and law enforcement authorities. The Board of will be shared by banks and customers depending on the
the banks/ ACB should alsoensure a periodical review of the circumstances under which the fraud took place. Customers
procedures and processes to avoid loopholes, if any, in their are exempted from liability if the fraud has happened due
policy guidelines. More importantly, the top management to negligence of the bank or a third-party breach where the
should organize fraud awareness training for its employees liability is not on the bank or the customer, but on the
focusing on prevention and detection of fraud. system. On the other hand, customers will have to bear the
loss if fraud has occurred due to negligence on their part.
Further, providing individuals a means to report suspicious In such cases, customers are liable for losses accrued before
activity is a critical part of an anti-fraud program. Towards they report the same to the bank.
this end, a system of protected disclosure scheme has been
evolved which is regulated by CVC in case of public sector Further, RBI has introduced stricter norms to appoint a
banks and RBI in case of private and foreign banks. Reserve correspondent bank abroad by a bank in India. "Shell Bank"
Bank has also advised private and foreign banks operating should be avoided in which case the bank abroad is only on
in India to upgrade their internal vigilance mechanism to paper. List of terrorist organizations is circulated by RBI for
the same level as is applicable in case of public sector banks banks to undertake necessary precaution in banking
in terms of CVC guidelines in the matter. transactions. List of wilful defaulters and non- cooperative
borrowers is also in circulation among banks On the advice
Information sharing is a vital fraud prevention and alert of RBI, banks are expected to freeze of assets of suspicious
mechanism. On its part, Reserve Bank shares information parties. PAN should be quoted for cash transaction of more
with all banks detailing the modus operandi of fraud cases than RS. 50.000. In addition, Forensic Laws expect a detailed

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