RBI expresses concern over NBFC frauds, issues guidelines

Mumbai, Sep 4 (UNI) Expressing concern over the rising number of incidents of frauds in Non Banking Financial Companies (NBFC), the Reserve Bank of India (RBI) has tightened its fraud reporting system and issued revised guidelines today.

Pointing out the delay in reporting frauds by the NBFCS, the RBI said the delay in reporting of frauds result in repeations of similar incidents in other NBFCs.

The Central Bank has classified the frauds for their reporting, such as frauds involving Rs 1 lakh and above, committed by unscrupulous borrowers, frauds involving Rs 25 lakh and above and cases of attempted frauds.

It suggested the NBFCs for filing of Progress Report, followed by Quarterly review of frauds and Annual review of frauds.

The RBI asked the NBFCs that they should specifically nominate an official of the rank of General Manager or equivalent who will be responsible for submitting all the returns.

It noted that the NBFCs are not required to submit 'Nil' reports to Frauds Monitoring Cell, but advised the NBFCs to take enough precautions in reporting fraud cases.

The RBI circular stated that it was not necessary to report the cases of cash shortages upto Rs 1,000, if there is no suspicion of fraud. However, it has asked to report cases of cash shortage above Rs 1000 and those detected by the management, irrespective of the amount.

It advised the NBFCs to submit fraud reports in the cases where Central investigating agencies have initiated criminal proceedings suo moto and/or where the apex bank has directed that they be reported as frauds.

The RBI told the NBFCs that they may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures, such frauds should, however, not be included in the report on outstanding frauds and the quarterly progress reports, the circular said.

The central bank asked the NBFCs to submit the fraud reports to the RBI's Banking Supervision, Frauds Monitoring Cell as well as Regional office of RBI, where the amount involved in fraud is Rs 25 lakh and above, under whose jurisdiction, the NBFCs registered office falls.

The RBI observed that a large number of frauds were committed by unscrupulous borrowers, including companies, partnership firms or proprietary concerns, by way fraudulent discount of instruments, fraudulent removal of pledged stocks without the NBFC's knowledge/inflating the value of stocks, diversion of funds outside the borrowing units, lack of interest or criminal neglect on the part of borrowers.

In cases where borrowal accounts involve an amount of Rs 5 lakh and above, the RBI asked the NBFCs to submit additional information.

It asked the NBFCs to submit the cases to the police, in case fraud involving an amount of Rs 1 lakh and above, committed by outsiders on their own and/or with the connivance of NBFC staff/officers, cases of fraud committed by NBFC employees, when it involves BFC funds exceeding Rs 10,000.

UNI