Banks can close old fraud cases of up to Rs 25 lakh: RBI

Banks can close old fraud cases of up to Rs 25 lakh: RBI

Mumbai
June 6, 2009

The Reserve Bank of India (RBI) has decided to relax the existing
norms on the closure of fraud cases by banks saying that banks would
be allowed, for limited statistical or reporting purposes, to close
those fraud cases involving amounts up to Rs 25 lakh, where the
investigation is on challan or chargesheet not filed in the court for
more than three years from the date of filing of first information
report (FIR) by the police or the trial in the courts, after filing of
charge sheet or challan by the police, has not started, or is in
progress.

“We had been receiving representations from various banks requesting
us to allow them to close the old cases of fraud in which all actions
at their end were completed but the investigation by police or court
cases filed by these agencies had been still pending for several
years. This has been resulting in accumulation of large number of
outstanding fraud cases in the records of banks, projecting an adverse
picture about the banks before the stakeholders or public, thereby
exposing them not only to reputational risk but also lower rating by
international agencies,” said the RBI in a notification.

With regard to the cases now being made eligible for closure, the
banks will have to submit their proposals, case wise, for closure to
the regional office of RBI under whose jurisdiction their head offices
are situated.

The cases may be closed after getting the approval of the respective
regional offices of RBI.

“The banks should maintain the record of details of such cases in a
separate ledger. Even after closure of the fraud cases for limited
statistical purposes, banks should vigorously follow up with the
investigating agencies to ensure that the investigation process is
taken to its logical conclusion. The banks should continue to ensure
that they are regularly and appropriately represented in the court
proceedings as and when required. All the relevant records pertaining
to such cases must be preserved till the cases are finally disposed of
by police or courts, as the case may be,” said the RBI.

The banks may, with the approval of their respective boards, frame
their own internal policy for closure of such fraud cases,
incorporating the above revised norms and other internal procedures as
deemed necessary, it added.

The RBI also mentioned that notwithstanding the fact that banks may
close cases of fraud even when police investigation is in progress or
cases are pending in the court of law, they should complete, within
the prescribed time frame, the process of examination of staff
accountability or conclude staff side actions.

In cases of frauds involving amounts above Rs 25 lakh, banks can close
fraud cases only after the fraud cases pending with police or court
have been finally disposed off, examination of staff accountability
has been completed, amount of fraud has been recovered or written off,
insurance claim, wherever applicable, has been settled and the bank
has reviewed the systems and procedures, identified the causative
factors, plugged the lacunae and the relative facts have been
certified by appropriate authority, which is the board or audit
committee.

[Source: The Financial Express]