RBI Warns Banks Against Fraudulent Accounts and Urges Investment in Technology

The Reserve Bank of India (RBI) issued a stern warning to banks about the presence of “lakhs of accounts” being used for fraudulent transactions and the ever-greening of loan accounts. RBI Deputy Governor Swaminathan J highlighted these concerns at a conference attended by statutory auditors and chief financial officers (CFOs) of commercial banks and financial institutions.

Swaminathan revealed that certain banks were found to have a large number of internal accounts without valid reasons, some of which were exploited for fraudulent activities and evergreening of loans. He emphasized that such internal accounts are inherently high-risk due to their potential for misuse.

“I urge CFOs to invest in technology and data analytics. This investment will empower them to provide more accurate and real-time financial insights, aiding in strategic decision-making and enhancing the ability to respond swiftly to any issues identified during audits or supervisory reviews,” Swaminathan stated.

He advised CFOs to rationalize the number of these accounts, reduce them to the essential minimum, and exercise greater control through periodic reconciliation and proper reporting to the Audit Committee of the Board (ACB). “CFOs must protect the integrity of financial reporting by guarding against any misadventure or intelligent interpretation of regulations or accounting standards,” he added.

Swaminathan also stressed the importance of CFOs maintaining open and honest communication channels with auditors and bank supervisors. “It is imperative to eschew the notion of hiding, withholding, or providing incomplete information to these teams. Transparency is key; by sharing comprehensive and accurate data, CFOs facilitate a smoother audit and supervision process and reinforce the bank’s commitment to integrity and compliance,” he said.

He underscored that collaboration and transparency build trust, ensure regulatory adherence, and ultimately contribute to the financial stability and reputation of the institution. CFOs were also encouraged to keep alive the channel of escalation to the Chair of the ACB if higher-level guidance is needed in any matter.

In conclusion, Swaminathan called for a proactive approach from CFOs, involving meticulous attention to detail, honest and transparent communication with top management, and a commitment to technological advancements. This approach is vital for safeguarding the financial integrity of banks and maintaining public trust in the financial system.