New Delhi: Banks plan to approach the Reserve Bank of India (RBI) to allow parallel internal investigations in cases where law enforcement agencies (LEAs) have initiated probes into borrower accounts, seeking to avoid gaps in fraud classification.
Lenders said limited information sharing often leads to misalignment between regulatory fraud tagging and ongoing investigations by agencies.
Following the Supreme Court ruling that no personal hearing is required before tagging an account as 'fraud', banks are looking to tighten internal frameworks, including early warning signal systems, to improve detection and consistency, people familiar with the matter said.
"Some initial discussion among all banks was held internally in the last two months and also with the government on this matter. Once finalised, a formal representation will be sent to RBI," said a bank executive, requesting anonymity.
Another bank executive said that under existing regulations, lenders must red flag an account (RFA) if LEAs initiate an investigation.
‘No Clarity on Time Period’
"Once it is tagged as RFA, the account needs to be reported to the Central Repository of Information on Large Credits within a week," he said.
Investigation agencies are often unable to complete investigations within the 180-day timeline mandated for banks to decide account status, he said. "This makes us susceptible to legal scrutiny from borrower's perspective given that often there is no clarity on the specific issue being investigated or the time period," he said.
Allowing banks to conduct their own investigations would mean accounts need not be tagged as RFA until fraudulent activity is established, he added.
In consortium lending cases, banks also want the final decision on classifying an account as fraud to rest with individual lenders.
"Each individual bank based on its internal policies should take a final decision," said another bank executive.
Lenders said limited information sharing often leads to misalignment between regulatory fraud tagging and ongoing investigations by agencies.
Following the Supreme Court ruling that no personal hearing is required before tagging an account as 'fraud', banks are looking to tighten internal frameworks, including early warning signal systems, to improve detection and consistency, people familiar with the matter said.
"Some initial discussion among all banks was held internally in the last two months and also with the government on this matter. Once finalised, a formal representation will be sent to RBI," said a bank executive, requesting anonymity.
Another bank executive said that under existing regulations, lenders must red flag an account (RFA) if LEAs initiate an investigation.
‘No Clarity on Time Period’
"Once it is tagged as RFA, the account needs to be reported to the Central Repository of Information on Large Credits within a week," he said.
Investigation agencies are often unable to complete investigations within the 180-day timeline mandated for banks to decide account status, he said. "This makes us susceptible to legal scrutiny from borrower's perspective given that often there is no clarity on the specific issue being investigated or the time period," he said.
Allowing banks to conduct their own investigations would mean accounts need not be tagged as RFA until fraudulent activity is established, he added.
In consortium lending cases, banks also want the final decision on classifying an account as fraud to rest with individual lenders.
"Each individual bank based on its internal policies should take a final decision," said another bank executive.
