Fraud loan accounts: S S Mundra cautions banks against delay in reporting

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Reserve Bank of India (RBI) Deputy Governor S S Mundra has warned banks that any delay on the part of the bankers in initially red flagging an exposure and subsequently declaring it as a fraud will have far reaching implications as “banks and bankers could be charged for abetting the criminal offence”.

“My call to you, therefore, is to identify and declare the account as fraud without wasting time. The best course of action would be to follow the instructions in letter and spirit and take a responsible and pro-active stand while attending consortium meetings,” Mundra told bankers.

While advances-related frauds constituted nearly 92 per cent of the total frauds reported by all banks, the RBI has observed that the exposure had got seasoned as an NPA for 3 to 4 years before the borrower was declared as fraudulent, he said. “As a consequence, the gap between the date of occurrence and detection has been widening. Further, the gap between first bank and the last bank reporting the borrowal account as fraud to the RBI is also very long,” Mundra said at a seminar on ‘Financial Crimes Management’ arranged by CAFRAL.

“What is the concern here? As you know ‘fraud’ is a criminal offence and any delay on the part of the bankers in initially red flagging an exposure and subsequently declaring it as a fraud will have far-reaching implications on the employee conduct and internal governance standard. Banks and bankers could be charged for abetting the criminal offence,” Mundra said.

Mundra’s statement has come after the CBI recently arrested a former chairman and four other ex-officials of IDBI Bank along with four former executives of Kingfisher Airlines in connection with the Vijay Mallya loan default case. As a penal measure, borrowers who have committed a fraud are debarred from availing finance from banks, FIs and NBFCs for a period of five years from the date of full payment of the defrauded amount.