RBI alarmed at lakhs of bank accounts being used for fraud: Report

The Reserve Bank of India (RBI) expressed its surprise at some banks having lakhs of accounts that are used for fraudulent transactions and evergreening loans, reported Business Standard.

“One area that has come into sharper focus in the last couple of years is the control and management of internal accounts. We found certain banks having lakhs of such accounts with apparently no valid reason,” RBI Deputy Governor Swaminathan J said on Tuesday in his address to banks, with chief financial officers and auditors in attendance.

He said that some of these accounts are used for fraudulent transactions and evergreening of loans.

Internal accounts are high-risk in nature on account of its potential for misuse while asking the CFOs to rationalise those accounts and bring them down to the essential minimum.

Mule accounts

Last week RBI Governor Shaktikanta Das — during his interaction with bank chiefs — had raised the issue of mule accounts (illegal accounts) and asked them to curb digital frauds.

Swaminathan urged the CFOs to have an eye for detail and an honest and transparent communication with the managing director and chief executive officer and the rest of the top management.

“You should also keep alive the channel of escalation to the chair of the audit committee of the board if a higher level of guidance is needed,” he said.

Deputy Governor M Rajeshwar Rao shared his concern about regulated entities using the flexibility offered in the principle-based regulation framework in a way that was not free from bias.

Rao also mentioned the impairment framework prescribed under Indian Accounting Standards, and said that while the framework was forward-looking, it had been observed that some non banking financial companies primarily relied on the 30 days-past-dues (DPD) criterion for loan loss.

“DPD, being a lagging indicator, is not always in sync with using the forward-looking approach of expected credit loss (ECL),” Rao said.

He said the regulator had been nudging non-banking financial companies, or NBFCs, to enhance their quality of disclosures, particularly in the context of the ECL framework.

“Auditors have the responsibility of ensuring that entities provide appropriate qualitative information related to governance and control mechanisms,” Rao said.