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RBI asks banks to install detection systems to check frauds

The early warning signals in a loan account should immediately put the bank on alert regarding any error which may ultimately turn out to be fraudulent.

, ET Bureau|
Updated: May 08, 2015, 04.38 PM IST
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The early warning signals in a loan account should immediately put the bank on alert regarding any error which may ultimately turn out to be fraudulent.
The early warning signals in a loan account should immediately put the bank on alert regarding any error which may ultimately turn out to be fraudulent.
MUMBAI: To check the rising instance of frauds in the banking system the Reserve Bank of India has asked banks to put in place early detection and prompt reporting mechanism in place.

The early warning signals in a loan account should immediately put the bank on alert regarding a weakness or wrong doing which may ultimately turn out to be fraudulent.

``The early detection of Fraud and the necessary corrective action are important to reduce the quantum of loss which the continuance of the Fraud may entail,’’ said the RBI in a notification.

Banks should have a way of preventing frauds in loan accounts is for banks to have a robust appraisal and an effective credit monitoring mechanism during the entire life-cycle of the loan account.

To strengthen the monitoring processes of projects and loans the RBI has asked banks to conduct investigations during the different stages of the loan life-cycle.

``Employees should be encouraged to report fraudulent activity in an account, along with the reasons in support of their views, to the appropriately constituted authority, under the Whistle Blower Policy of the bank, who may institute a scrutiny through the fraud monitoring group or FMG,’’ said the RBI.

In case of consortium arrangements, individual banks must conduct their own due diligence before taking any credit exposure and also independently monitor the end use of funds rather than depend fully on the consortium leader.

The central bank is in the process of designing a Central Fraud Registry, a centralised searchable database, which can be accessed by banks.

``The CBI and the Central Economic Intelligence Bureau (CEIB) have also expressed interest in sharing their own databases with the banks. More information in this regard would follow once the structure is finalised,’’ said the RBI.

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