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RBI has issued three revised master directions on fraud risk management for Regulated Entities.
Regulated Entities under RBI:
- Commercial Banks (including Regional Rural Banks) and All India Financial Institutions;
- Cooperative Banks (Urban Cooperative Banks / State Cooperative Banks / Central Cooperative Banks);
- Non-Banking Finance Companies (including Housing Finance Companies).
Major Points of Master Directions
- In compliance with the Supreme Court judgement in State Bank of India & Ors. Vs. Rajesh Agarwal & Ors of 2023 REs shall ensure compliance with the principles of natural justice in a time-bound manner before classifying Persons / Entities as fraud.
- The requirement for Data Analytics and Market Intelligence Unit is mandated to strengthen risk management systems.
- Framework on Early Warning Signals and Red Flagging of Accounts has been strengthened for early detection and prevention of frauds in the REs.
- Also timely reporting to law enforcement agencies and supervisors.
Significance
- Reducing and rationalising the compliance burden on the REs as the existing 36 Circulars were withdrawn.
- Instituting robust internal audit and controls framework in the REs.
- Extended to Regional Rural Banks, Rural Cooperative Banks, and Housing Finance Companies to enhance fraud risk management across more financial institutions.
