Operating Framework for Identifying and Dealing with Frauds :
All banks have policy and operating framework in place for detection, reporting and monitoring of frauds as also the surveillance/ oversight process in operation so as to prevent the perpetration of frauds. The RBI, based on the findings from certain forensic scrutinises conducted by it, vide its Circular No. DBS. CO.FrMC.BC.No.10/23.04.001/2010-11 dated 31st May 2011, had identified certain areas wherein frauds had shown occurrence or increasing trend in banks. These areas include:-
loans/ advances against hypothecation of stocks.
housing loans cases.
submission of forged documents including letters of credit.
escalation of overall cost of the property to obtain higher loan amount.
over valuation of mortgaged properties at the time of sanction.
grant of loans against forged FDRs.
over-invoicing of export bills resulting in concessional bank finance, exemptions from various duties, etc.
frauds stemming from housekeeping deficiencies.
RBI has accordingly prescribed certain guidelines to be incorporated by the banks in their operating framework for identifying and dealing with frauds. These guidelines have been detailed in the following paragraphs.
The operating framework for tracking frauds and dealing with them should be structured along the following tracks:
(i) Detection and reporting of frauds.
(ii) Corrective action.
(iii) Preventive and punitive action.
(iv) Provisioning for Frauds.