Reporting of Fraud to RBI

Reporting of Fraud to RBI :

Banks need not furnish FMR-1 return in respect of individual fraud cases involving amount below ` 1.00 Lakh to RBI. However, banks should furnish the statistical data in respect of such frauds to RBI in a quarterly statement.

(a) Frauds involving amounts of ` 1.00 lakh and above but less than ` 25.00 lakh

The cases of individual frauds involving amounts of ` 1.00 lakh and above but less than ` 25.00 lakh should be reported to the Regional Office of Urban Banks Department of Reserve Bank of India, under whose jurisdiction the Head Office of the bank falls, in the format given in FMR-1, within three weeks from the date of detection.

Frauds including subsidiaries and affiliates/joint ventures perpetrated through misrepresentation, breach of trust, manipulation of books of account, fraudulent encashment of instruments like cheques, drafts and bills of exchange, unauthorized handling of securities charged to the bank, misfeasance, embezzlement, misappropriation of funds, conversion of property, cheating, shortages, irregularities, etc.

Cases under criminal proceedings initiated by central investigating agencies suo-moto and/or where RBI has directed to treat as frauds.

Banks are required to send Soft copy of the reports (FMR-1/B) to the Central Office of the Department of Banking Supervision (DBS) within three weeks of detection of fraud, etc.

(b) Frauds involving amounts of ` 25.00 lakh and above

The cases of individual frauds involving amounts of ` 25.00 lakh and above should be reported to Central Frauds Monitoring Cell, Department of Banking Supervision, Reserve Bank of India, in the format given in FMR-1, within three weeks from the date of detection. Separate FMR-1 should be furnished in respect of each, case without clubbing. A copy of FMR-1 should also be submitted to the Regional Office of Urban Banks Department of Reserve Bank of India under whose jurisdiction the Head Office of the bank falls.

Banks may report the fraud by means of D.O. letter giving the details such as amount involved, nature of fraud, modus operandi in brief, name of the branch/office, parties involved, etc. addressed to the Principal Chief General Manager of the Department of Banking Supervision, Reserve Bank of India, Central Office, within a week of such fraud coming to the notice of the bank’sHead Office.

Frauds committed by unscrupulous borrowers

Such frauds include:-

– Fraudulent discount of instruments or kite flying in clearing effects.

– Fraudulent removal of pledged stocks/disposing of hypothecated stocks without the bank’s knowledge/ inflating the value of stocks in the stock statements and drawing excess bank finance.

– Diversion of funds outside the borrowing units, lack of interest or criminal neglect on the part of borrowers, their partners, etc. leading to the unit becoming sick as also due to laxity in effective supervision over the operations in borrowal accounts on the part of the bank functionaries rendering the advance difficult to recover.

– In respect of frauds in borrowal accounts additional information as prescribed under Part B of FMR – 1 should also be furnished.

Banks are supposed to exercise due diligence while appraising the credit needs of unscrupulous borrowers, borrower companies, partnership/proprietorship concerns and their directors, partners and proprietors, etc. as also their associates who have defrauded the banks.

Besides the borrower fraudsters, other third parties such as builders, vehicle/tractor dealers, warehouse/cold storage owners, etc. and professionals are also to be held accountable if they have played a vital role in credit sanction/ disbursement or facilitated the perpetration frauds. Banks are required to report to Indian Banks Association (IBA) the details of such third parties involved in frauds.

Cases of attempted fraud

The practice of reporting attempted fraud, where likely loss would have been ` 25 lakhs or more to Fraud Monitoring Cell, Reserve Bank of India, Central Office has been discontinued. However, the bank should continue to place the individual cases of attempted fraud involving `25 lakhs or more before the Audit Committee of its Board. The report containing attempted frauds which is to be placed before the Audit Committee of the Board should cover the following :

(a) The modus of operandi of attempted fraud (b) How the attempt did not materialize into a fraud or how the attempt failed/or was foiled.(c) The measures taken by the bank to strengthen the existing systems and controls (d) New systems and controls put in place in the area where fraud was attempted,

In addition, yearly consolidated review of such cases detected during the year containing information such as area of operations where such attempts were made, effectiveness of new process and procedures put in place during the year, trend of such cases during the last three years, need for further change in process and procedures, if any, etc. as on March 31 every year may be placed before the Audit Committee of the Board starting from the year ending March 31, 2013 within three months from the end of the relative year.

Quarterly Returns

Report on frauds outstanding

– Banks are required to submit its Quarterly Report (FMR-2) on frauds outstanding to Central Office, RBI, within 15 days of the end of the quarter it relates (soft copy).

– The Report is to be accompanied by a certificate to the effect that all individual fraud cases of ‘1 Lakh and above reported to the RBI (FMR-1) during the quarter have also been put up to the bank’s Board and have been incorporated in the Report.

Closure of fraud cases

– Fraud cases closed during the quarter are required to be reported by banks in quarterly return to the Central Office, RBI, and Regional Office, RBI, along with reasons for the closure where no further action was called for.

– Cases closed/reported with prior approval of Regional Office, RBI, should also fulfill:-

(a) CBI/Police/Court have finally disposed of;

(b) Staff accountability has been examined/completed;

(e) Bank has reviewed the systems and procedures taken steps to avoid recurrence and the fact of which has been certified by the Board.

Banks should also pursue vigorously with CBI for final disposal of pending fraud cases especially where the banks have completed staff side action, etc.

Progress Reports on Frauds (FMR-3)

Banks are required to submit case-wise quarterly progress reports on frauds involving ` 1.00 lakh and above (including cases where there are no developments) in the format given in FMR – 3 to the Central Office of RBI as well as the concerned Regional Office of the RBI within 15 days of the end of the quarter to which they relate.

Reporting to the Board

Banks need to ensure that all frauds of ` 1.00 Lakh and above are reported to their Boards promptly on their detection. Such reports should, among others, contain the failure on the part of the concerned branch officials and controlling authorities and consider initiation of appropriate action against the officials responsible for the fraud.

Quarterly Review of Frauds

– Information relating to frauds are to be placed before the Audit Committee of the Board of Directors on quarterly basis ending March, June and September with statistical analysis.

– Banks are required to constitute a Special Committee consisting of CMD of public sector banks and MD in respect of SBI/its associates for monitoring and follow up of cases of frauds involving amounts of ` 1.00 crore and above exclusively. The main function of the committee would be to monitor and review all the frauds of ` 1.00 crore and above and to put in place, among others, measures as may be considered to prevent recurrence of frauds such as strengthening of internal controls etc.

Annual Review of Frauds

Banks are required to conduct an annual review of the frauds and place a note before the Board of Directors/ Local Advisory Board for information. The review would take into account, among others, whether the systems in the bank are adequate to detect frauds once they have taken place within the shortest possible time.

Guidelines for Reporting Frauds to Police/CBI/Private Sector Banks/Foreign banks (operating in India)

While reporting the frauds, banks are required to ensure that, besides the necessity of recovering the amount expeditiously, the guilty persons do not get unpunished.

Cases that are required to be referred to State Police include:-

(i) Cases of fraud involving an amount of ` 1.00 lakh and above committed by outsiders on their own and/or with the connivance of bank staff/officers.

(ii) Cases of fraud involving amount exceeding ` 10,000/-committed by bank employees.

(iii) Fraud cases involving amounts of Rs 1.00 crore and above should also be reported to the Serious Fraud Investigation Office (SFIO), GOI, in FMR-1.

Public Sector Banks

All frauds below ` 3 Crore are to be reported to the Local Police.

Cases to be referred to CBI

(a) Cases of fraud involving amount of ` 3.00 crore and above upto ` 15.00 crore:-

– Where staff involvement is prima facie evident – CBI (Anti Corruption Branch).

– Where staff involvement is prima facie not evident- CBI (Economic Offences Wing)

(b) All cases involving more than `15.00 crore – Banking Security and Fraud Cell of the respective centres, which is a specialized cell of the Economic Offences Wing of the CBI for major bank fraud cases.

Cases to be referred to Local Police

*Fraud involving*	*Compliant to be filed with*
` 1.00 Lakh and above involving outsiders (Private parties and bank staff)	Regional Head of the bank to State CID/Economic OffencesWing of State concerned
Below ` 1.00 Lakh but above ` 10,000/-	Local Police Station by the branch
Below ` 10,000/- involving bank officials	Reported to Regional Head of the bank to decide on further course of action.
Fraudulent encashment of DD/TTs/Pay orders/ Cheques/DWs, etc.	Local Police concerned
Frauds involving forged instruments	Paying banker to Local Police
Collection of genuine instrument, but collected frequently by a person who is not the owner	Collecting bank to Local Policeconcerned
Payment of uncleared instrument which found to be fake/forged and returned by the paying bank	Collecting Bank to Local Police
Collection/payment of altered/fake cheque involving 2 or more branches of the same bank	Branch where the cheque was encashed to the Local Police

Reporting Cases of Theft, Burglary, Dacoity and Bank Robberies

Occurrence of any bank robberies, dacoities, thefts and burglaries are required to be reported immediately by Fax/ e-mail to RBI, Department of Banking Supervision, Central Office and Regional Office, SecurityAdviser and Ministry of Finance Department of Economic Affairs (Banking Division), GOI, with details of modus operandi and other information as required in FMR-4. Banks are also required to submit a quarterly consolidated statement (FMR-4) to RBI Central Office/RO within 15 days of the end of the quarter it relates. In case of no theft, burglary, dacoity, and bank robberies during a quarter, a NIL report is required to be submitted to RBI.

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