Detection and Reporting of Frauds :
(a) The banks are required to have a set of prescribed procedures and criteria with which the events or transactions having serious irregularities are
analysed and assessed to establish occurrence of fraud.
(b) The banks may define a ‘fraud’ based on the guidelines issued by RBI. While doing so, they may clearly demarcate/ distinguish the occurrence of
an event on account of negligence ‘in conduct of duty’ from ‘collusion’ by the bank staff (with the borrowers and with an intention to cheat the bank).
(c) Care needs to be exercised while dealing with instances of ‘wilful default’. In this connection, a wilful default would be deemed to have occurred if any of the following events is noted:
The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations.
The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the
specific purposes for which finance was availed of but has diverted the funds for other purposes.
The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not
been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed
assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank / lender.
Further, the banks may also examine the ‘intent’ to defraud, irrespective of whether or not actual loss takes place. Keeping these key factors in
mind, any action taken in collusion to derive undue/ unjust benefit or advantage should be termed as fraud.
Accordingly, once a fraud is detected, a report must be prepared and submitted to the “Competent Authority”.
As a part of their overall policy and operating framework, the banks need to identify and designate the Competent Authority to whom such
reports should be submitted.
The fraud report should be a diagnostic assessment, clearly bringing out the causes of the fraud and identify whether the fraud occurred due to
‘system failure’ or ‘human failure’.