Lok Sabha Question No. 699 (UNSTARRED), answered on 2018-12-14
Subject: Cases of Bank Frauds
Ministry: FINANCE
Asked by: VINCENT H PALA, SHASHI THAROOR

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO 699

TO BE ANSWERED ON THE 14 TH  DECEMBER, 2018 / AGRAHAYANA 23, 1940 (SAKA)

## Cases of Bank Frauds

## 699. SHRI VINCENT H. PALA, DR. SHASHI THAROOR:

Will the Minister of FINANCE be pleased to state:

- (a)   whether  the  Government  has  received  a  list  of  high  profile  cases  of  bank  fraud from former Governor of the Reserve Bank of India;
- (b)  if so, the details thereof and the date on which the list was sent to the Government and the names of the persons or entities mentioned in the list;
- (c)  whether the Government referred the list for urgent investigation to the CBI or any other investigation agency, if so, the details thereof, including the date on which it was sent to the concerned agency; and
- (d)  if not, the reasons therefor?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI SHIV PRATAP SHUKLA)

(a)  to  (d) The  then  Governor,  RBI  had  written  to  the  Government  about  large  value banking fraud cases in February, 2015.

In all the cases referred to by the former Governor RBI, cases have been registered by Central Bureau of Investigation (CBI)/ Enforcement Directorate (ED).

The Government has instructed all Public Sector Banks (PSBs) to take action regarding frauds as prescribed by RBI Master Circular dated July 1, 2014 which was supplemented by RBI Circular dated 07.05.2015.

Government  of  India  has  also  issued  instructions  dated  13.05.2015  to  all  PSBs reiterating the framework for timely detection, reporting, and investigation etc. relating to large value bank frauds. It was emphasized that banks should be prompt in identification of frauds and taking following actions:

-  Complaints to be lodged with CBI in accordance with prescribed checklist.
-  CVOs of Banks will be designated as nodal officer for vetting of complaint & future coordination with CBI.
-  Once fraud is reported, the banks will immediately initiate examination of the issue of wilful default.
-  All  accounts  exceeding  Rs.50  Cr,  if  classified  as  NPA,  shall  simultaneously  be examined by banks from fraud angle.
-  The  CBI  will  put  in  place  mechanism  for  reviewing  and  monitoring  progress  in investigations etc. of all banking frauds exceeding Rs.10 Cr and achieving interagency coordination.
-  Banks at the time of lodging a complaint with the CBI would also lodge a complaint with the Enforcement Directorate in those accounts where money laundering and

FEMA violations also appear to be there. Similarly where the fraud also appears to involve violations in the export and / or import of goods and services, a report will also be lodged with DRI.

All  PSBs  were  re-sensitized  on  27.02.2018,  by  reiterating  the  contents  of  letter  dated 13.05.2015,  to  ensure  effective  management  of  operational  risk  including  technology risk.

The other measures taken by Government to control and prevent frauds in the banks, inter-alia, are as follows:

-  PSBs  have  been  advised  to  obtain  a  certified  copy  of  the  passport  of  the Promoters/ Directors and other authorized signatories of the companies availing loan facilities of more than Rs. 50 crore and above.
-  Banks have been asked to decide on publishing photographs of wilful defaulters, in terms of RBI's instructions, and as per their Board-approved policy.
-  Banks  have  also  been  advised  to  ensure  rotational  transfer  of  officials / employees strictly.
-  Central  Fraud  Registry  (CFR)-  a  web  based  searchable  database  of  frauds reported  by  the  banks,  containing  data  for  the  last  13  years,  has  been  made operational in RBI with effect from January 20, 2016. The Registry is shared with the  reporting  entities  and  intended  to  serve  as  a  tool  for  timely  identification, control and mitigation of fraud risk as also for carrying out due diligence during credit sanction process.
-  RBI has imposed penalty on banks for deficiencies observed in internal control leading  to  frauds  in  deposit  accounts,  cheque  misuse  etc.  It  had  also  issued 'Letter  of  Warning'  to  some  banks  with  regard  to  the  lapses  in  following  the procedures / guidelines / reporting etc.
-  Banks have been advised through circulars for rotation and mandatory leave of staff  in  sensitive  positions  and  the  same  was  advised  to  be  covered  in  internal audit also in 2011.
-  In the wake of SWIFT related frauds, RBI vide Press Release dated 20.02.2018 has reiterated its confidential instructions and mandated the banks to implement, within  the  stipulated  deadlines,  the  prescribed  measures  for  strengthening  the SWIFT operating environment in banks.

******