Banks to restrict Red Flagged Accounts
RBI has furnished inputs with respect to its instructions to the banks to bring changes as per its new guidelines to strengthen their monitoring mechanism.
A Circular of confidential nature was issued by RBI to all the banks in February 2018 to implement security and operational controls such as Straight-Through Process (STP) between CBS/accounting system and SWIFT messaging system, enable time-based restrictions in SWIFT, review logs at regular intervals, undertake reconciliation, etc in a time bound manner, and the banks were also advised that in case of non-compliance RBI may take enforcement action against them.
Banks should closely monitor the end-use of funds and obtain certificates from borrowers certifying that the funds are utilised for the purpose for which they were obtained. In case of wrong certification by the borrowers, banks may consider appropriate legal proceedings, including criminal action wherever necessary, against the borrowers.
To direct the focus of banks, on early detection of loan frauds, prompt reporting to the RBI and the investigative agencies and timely initiation of staff accountability proceedings, RBI had issued a framework, with stipulated timelines with actions incumbent on banks, for dealing with loan frauds of Rs.50 crore and above, wherein banks were advised to classify potential fraud accounts as Red Flagged Accounts based on observation or evaluation of Early Warning Signals noticed.
The red flagging is done on an IT platform where all banks report large exposure to entities or individuals so that other banks can be forewarned about fraud risk, and RBI reviews the cyber security developments and threats on an ongoing basis and necessary measures are taken to strengthen the cyber resilience of banks.
Compliance of the guidelines of the RBI lies under the purview of RBI.
Further, as per RBI’s inputs, banks were advised that in case of non-compliance RBI will take enforcement action against them.
