Banks may urge RBI to soften fraud norms: Report

With a spike in the number of scams plaguing the banking sector in the last few years, the banks might approach the RBI to seek watered-down classification norms for loan accounts hit by fraud.

According to a Mint report, the Indian Banks' Association is planning to ask the central bank to term 'fraud' only the section of the loan amount with suspected fraudulent transactions.

As of now, what the banks are supposed to do is reserve the entire amount of the banks' dues from the loan accounts marred by fraud.

“A forensic audit helps us identify transactions where fraud has taken place. So the question is whether only that portion should be declared as fraud or the entire account?" a senior banker in the know of the issue told the newspaper.

The RBI, in its Financial Stability Report released in June 2019, had said that there were delays in the recognition of frauds and the reasons cited by the banks included delays in completing forensic audits or inconclusive findings of forensic audits. The RBI also proposed to revise the Master Direction on Frauds and issue necessary guidance to banks. "The time-lag between the date of occurrence of a fraud and the date of its detection is significant. The amount involved in frauds that occurred between 2000-01 and 2017-18 formed 90.6 per cent of those reported in 2018-19," said RBI.

“The banks are only looking at credit risks — whether the money will come back or not. They don’t have proper systems and methodologies in place to identify fraud. That should be the focus so that they can avoid provisions in the future," Vikram Babbar, a partner at EY, told the newspaper.