भारतीय �रज़वर् ब�क

_______ RESERVE BANK OF INDIA________

www.rbi.org.in

RBI/2015-16/75
DBS.CO.CFMC.BC.No.1/23.04.001/2015-16 July 01, 2015

The Chairmen & Chief Executive Officers of all

Scheduled Commercial Banks (excluding RRBs)
and All India Select Financial Institutions

Dear Sir,

Frauds – Classification and Reporting

Please refer to our letter DBS.CO.CFMC.BC.No.1/23.04.001/2014-15 dated July 01,

2014 forwarding the Master Circular on 'Frauds – Classification and Reporting'. It may
be noted that the Master Circular consolidates and updates all the instructions issued
during the year since the date of the last Master Circular dated July 01, 2014. The
Master Circular has been updated as on June 30, 2015 and has been placed on the
web-site of the Reserve Bank of India (www.rbi.org.in).

Yours faithfully

(Manoj Sharma)
Chief General Manager

ब��कग पयर्वेक्षण िवभाग, क� �ीया कायार्लय, वल्डर् �ेड स�टर, स�टर 1, कफ परे ड, कोलाब, मुम्बै- 400005,
टेिलफोन¸: (9122) 22180204 फै क्स: 022 22180157 e-mail- [email protected]
Department of Banking Supervision, Central Office, World Trade Centre 1, Cuffe Parade, Colaba, Mumbai - 400 005, INDIA
Tele: (9122) 22180204 Fax: 022 22180157 e-mail: [email protected]
CONTENTS

1. INTRODUCTION .................................................................................................. 3

2. CLASSIFICATION OF FRAUDS.......................................................................... 4

3. REPORTING OF FRAUDS TO RBI .................................................................. 5-7

4. QUARTERLY RETURNS ..................................................................................... 8

4.1 REPORT ON FRAUDS OUTSTANDING - FMR 2....................................8

4.2 PROGRESS REPORT ON FRAUDS - FMR 3..........................................8

5. DELAYS IN REPORTING OF FRAUDS .............................................................. 8

6. REPORTS TO THE BOARD ........................................................................... 9-13

6.1 REPORTS TO THE BOARD ................................................................ 9

6.2 QUARTERLY REVIEW OF FRAUDS ................................................... 9

6.3 ANNUAL REVIEW OF FRAUDS .......................................................... 9

6.4 SPECIAL COMMITTEE OF THE BOARD .......................................... 11

7. CASES OF ATTEMPTED FRAUD ..................................................................... 13

8. CLOSURE OF FRAUD CASES .................................................................... 14-15

9. GUIDELINES FOR REPORTING FRAUDS TO POLICE/CBI ...................... 15-17

10. CHEQUE RELATED FRAUDS, PRECAUTIONS TO BE TAKEN AND

REPORTING TO RBI AND THE POLICE .................................................... 17-19

11. LOAN FRAUDS - NEW FRAMEWORK ........................................................ 19-29

11.1 LOAN FRAUDS - NEW FRAMEWORK ............................................ 19

11.2 OBJECTIVE OF THE FRAMEWORK ............................................... 20

11.3 EARLY WARNING SIGNALS (EWS) AND RED FLAGGED ACCOUNTS

(RFA) ................................................................................................... 20-22

11.4 EARLY DETECTION AND REPORTING .................................... 22-24

11.5 STAFF EMPOWERMENT ................................................................ 24

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 11.6 ROLE OF AUDITORS ...................................................................... 24

11.7 INCENTIVE FOR PROMPT REPORTING ....................................... 24

11.8 BANK AS A SOLE LENDER............................................................. 25

11.9 LENDING UNDER CONSORTIUM OR MULTIPLE BANKING

ARRANGEMENTS .............................................................................. 25-27

11.10 STAFF ACCOUNTABILITY ............................................................ 27

11.11 FILING COMPLAINTS WITH LAW ENFORCEMENT AGENCIES .......... 28

11.12 PENAL MEASURES FOR FRAUDULENT BORROWERS ....... 29-30

12. REPORTING CASES OF THEFT, BURGLARY, DACOITY AND BANK

ROBBERIES ................................................................................................. 30-31

ANNEX I .............................................................................................................. 32-33

ANNEX II ............................................................................................................. 34-35

ANNEX III - FRAUD MONITORING RETURNS .................................................... 36-55

FMR 1: Report on Actual or suspected Frauds in Banks................. .. ...35-43
FMR 2: Quarterly Report on Frauds Outstanding ................................. 44-50
FMR 3: Quarterly Progress Report on Frauds ...................................... 51-53
FMR 4: Report on Dacoities/Robberies/Thefts/Burglaries .................... 54-55

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1. INTRODUCTION

1.1 Incidence of frauds, dacoities, robberies, etc., in banks is a matter of concern.

While the primary responsibility of preventing frauds lies with banks
themselves, Reserve Bank of India (RBI) has been advising them from time
to time about the major fraud prone areas and the safeguards necessary for
prevention of frauds. RBI has also been circulating to banks, the details of
frauds and unscrupulous borrowers and related parties who have perpetrated
frauds on other banks so that banks could introduce necessary safeguards /
preventive measures by way of appropriate procedures and internal checks
and also exercise caution while dealing with them. To facilitate this ongoing
process, it is essential that banks report to RBI complete information about
frauds and the follow-up action taken thereon. Banks may, therefore, adopt
the reporting system for frauds as prescribed in following paragraphs.

1.2 The Chairmen and Managing Directors/Chief Executive Officers (CMD/CEOs)

of banks must provide focus on the "Fraud Prevention and Management
Function" to enable, among others, effective investigation of fraud cases and
prompt as well as accurate reporting to appropriate regulatory and law
enforcement authorities including Reserve Bank of India.

1.2.1 The fraud risk management, fraud monitoring and fraud investigation function
must be owned by the bank's CEO, Audit Committee of the Board and the
Special Committee of the Board.

1.2.2 Banks may, with the approval of their respective Boards, frame internal policy
for fraud risk management and fraud investigation function, based on the
governance standards relating to the ownership of the function and
accountability which may rest on defined and dedicated organizational set up
and operating processes.

1.2.3 Banks are required to send the Fraud Monitoring Returns (FMR) and data,
based on the Frauds Reporting and Monitoring System (FRMS) supplied to
banks, as detailed in para 3.2 below. Banks should specifically nominate an

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 official of the rank of General Manager who will be responsible for submitting
all the returns referred to in this circular.

2. CLASSIFICATION OF FRAUDS

2.1 In order to have uniformity in reporting, frauds have been classified as under,
based mainly on the provisions of the Indian Penal Code:

a) Misappropriation and criminal breach of trust.

b) Fraudulent encashment through forged instruments, manipulation of

books of account or through fictitious accounts and conversion of
property.

c) Unauthorised credit facilities extended for reward or for illegal

gratification.

d) Negligence and cash shortages.

e) Cheating and forgery.

f) Irregularities in foreign exchange transactions.

g) Any other type of fraud not coming under the specific heads as above.

2.2 Cases of 'negligence and cash shortages' and ‘irregularities in foreign

exchange transactions’ referred to in items (d) and (f) above are to be
reported as fraud if the intention to cheat/defraud is suspected/ proved.
However, the following cases where fraudulent intention is not suspected/
proved at the time of detection will be treated as fraud and reported
accordingly:

(a) cases of cash shortage more than `10,000/-, (including at ATMs) and

(b) cases of cash shortage more than `5,000/- if detected by management

/ auditor/ inspecting officer and not reported on the day of occurrence
by the persons handling cash.

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 3. REPORTING OF FRAUDS TO RESERVE BANK OF INDIA

3.1 Banks need not furnish FMR 1 return in fraud cases involving amount
below ₹0.1 million to RBI in either hard or soft copy. However, banks at
their end should make the data entry in respect of such cases through the
FRMS package individually in FMR 1 format (less than ₹0.1 million) which
will get automatically captured in FMR 2 return and will form part of the
consolidated database relating to frauds for the respective bank. In
respect of frauds above ₹0.1 million the following procedure may be
adopted.

Name of Amount Medium To whom it should Timeline for Remarks

the return involved in in which be reported reporting
the fraud to be
reported
FMR 1 Frauds Soft copy Central Fraud Within three
involving Monitoring Cell weeks of
Report on ₹0.1 million (CFMC), Bengaluru. detection
actual or and above
suspected
frauds

A format of
the return is
given in
Annex III

-do- `0.1 million Hard 1. To the -do- List of banks

and above - copy Regional Office under the
`5 million (RO) of RBI, supervisory
Department of purview of Senior
Banking Supervisory
Mangers (SSMs)
Supervision (DBS) and Small Bank
under whose Monitoring
jurisdiction the Division (SBMD)
branch where the given in Annex I.
fraud has taken
place is located.
2. To the RO, DBS /
SBMD under whose
jurisdiction the Head
Office of the bank

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 where the fraud has
taken place is located
or to the SSM of the
Bank.

-do- Fraud cases Hard 1. CFMC Bengaluru -do- -do-

involving an copy
amount of 2. RO of RBI (DBS) /
₹5 million SBMD under whose
and above. jurisdiction the head
office of the bank falls
or the SSM of the
bank.

Flash report For frauds Hard 1. Through a DO Within a Should include

(in addition involving copy letter addressed to week of such amount involved,
to FMR 1) ₹10 million the PCGM/ CGM-in- frauds nature of fraud,
and above Charge, DBS RBI, coming to modus operandi
Central Office, the notice of in brief, name of
Mumbai. the bank’s the branch/ office,
head office names of parties
2. Copy to the RO of involved, their
RBI under whose constitution
jurisdiction the bank's names of
branch, where the proprietors/
fraud has been partners and
perpetrated, is directors, names
functioning and RO of of officials
RBI (DBS) / SBMD involved and
under whose lodging of
jurisdiction the head complaint with
office of the bank falls police/CBI.
or the SSM of the
bank.

FMR 2 Quarterly Soft copy CFMC Bengaluru Within 15 Nil report to be

report on only days of the submitted if no
A format of frauds end of the fraud is
the return is outstanding quarter to outstanding.
given in which it
Annex III relates

FMR 3 Case-wise Soft copy CFMC Bengaluru Within 15 Nil report to be

quarterly only days of the submitted if
A format of progress end of the there are no
the return is reports on quarter to frauds above `0.1
given in frauds which they million
Annex III involving relate. outstanding.
`0.1 million
and above

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3.2 In respect of frauds in borrowal accounts, additional information as prescribed
under Part B of FMR 1 should also be furnished. It is observed while
scrutinizing FMR 1 returns from the banks, that certain vital fields in the
returns are left blank. As the complete particulars on frauds perpetrated in the
banks are vital for monitoring and supervisory purposes and issue of caution
advices, banks should ensure that the data furnished are complete/accurate
and up-to-date. Incidentally, if no data is to be provided in respect of any of
the items, or if details of any of the items are not available at the time of
reporting of FMR 1 return, the bank may indicate as “no particulars to be
reported” or “details not available at present” etc. In such a situation, the
banks have to collect the data and report the details invariably through FMR 3
return on quarterly basis.

3.3 Fraud reports should also be submitted in cases where central investigating
agencies have initiated criminal proceedings suo moto and/or where the
Reserve Bank has directed that such cases be reported as frauds.

3.4 Banks may also report frauds perpetrated in their subsidiaries and
affiliates/joint ventures in FMR 1 format in hard copy only. Such frauds
should, however, not be included in the report on outstanding frauds and the
quarterly progress reports referred to in paragraph 4 below. Such frauds will
not be entered in the FRMS package at any stage. In case the subsidiary/
affiliate/joint venture of the bank is an entity which is regulated by Reserve
Bank of India and is independently required to report the cases of fraud to
RBI in terms of guidelines applicable to that subsidiary/affiliate/joint venture,
the parent bank need not furnish the hard copy of the FMR 1 statement in
respect of fraud cases detected at such subsidiary/affiliate/joint venture.

3.5 Banks (other than foreign banks) having overseas branches/offices should
report all frauds perpetrated at such branches/offices also to RBI.

3.6 Central Fraud Monitoring Cell (CFMC), Department of Banking Supervision,

Central Office located at Bengaluru will publish a directory of officers of all
banks/Financial Institutions (FI) responsible for reporting of Frauds etc. All

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 banks/Financial Institutions should furnish to Department of Banking
Supervision, Central Fraud Monitoring Cell, Bengaluru any changes in the
names of officials that will be necessary for inclusion in the directory on
priority basis as and when called for.

4. QUARTERLY RETURNS

4.1 Report on Frauds Outstanding - FMR 2

4.1.1. The total number and amount of fraud cases reported during the quarter as
shown in Parts B and C of the return should tally with the totals of columns 4
and 5 in Part - A of the report.

4.1.2 Banks should furnish a certificate, as part of the above report, to the effect
that all individual fraud cases of ₹0.1 million and above reported to the
Reserve Bank in FMR 1 during the quarter have also been put up to the
bank’s Board and have been incorporated in Part - A (columns 4 and 5) and
Parts B and C of FMR 2. A ‘Nil’ report should be submitted if there are no
frauds outstanding at the end of a quarter.

4.2 Progress Report on Frauds - FMR 3

4.2.1 A list of cases of frauds where there are no developments during a quarter
with a brief description including name of branch and date of reporting may
be furnished in Part - B of FMR 3. A ‘Nil’ report should be submitted if there
are no frauds above `0.1 million outstanding.

5. DELAYS IN REPORTING OF FRAUDS

5.1 Banks should ensure that the reporting system is suitably streamlined so that
delays in reporting of frauds, submission of delayed and incomplete fraud
reports are avoided. Banks must fix staff accountability in respect of delays
in reporting fraud cases to RBI.

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5.2 Delay in reporting of frauds and the consequent delay in alerting other banks
about the modus operandi and issue of caution advices against unscrupulous
borrowers could result in similar frauds being perpetrated elsewhere. Banks
may, therefore, strictly adhere to the timeframe fixed in this circular for
reporting fraud cases to RBI failing which they would be liable for penal action
prescribed under Section 47(A) of the Banking Regulation Act, 1949.

6. REPORTS TO THE BOARD

6.1 Banks should ensure that all frauds of ₹0.1 million and above are reported to
their Boards promptly on their detection. Such reports should, among other
things, take note of the failure on the part of the concerned branch officials
and controlling authorities, and give details of action initiated against the
officials responsible for the fraud.

6.2 Quarterly Review of Frauds

6.2.1 As advised vide circular DBS.FrMC.BC.No.5/23.04.001/2012-13 dated

January 04, 2013 information relating to frauds for the quarters ending June,
September and December may be placed before the Audit Committee of the
Board of Directors during the month following the quarter to which it pertains.

6.2.2 These should be accompanied by supplementary material analysing

statistical information and details of each fraud so that the Audit Committee of
the Board would have adequate material to contribute effectively in regard to
the punitive or preventive aspects of frauds.

6.2.3 A separate review for the quarter ending March is not required in view of the
Annual Review for the year-ending March prescribed at para 6.3 below.

6.3 Annual Review of Frauds

6.3.1 Banks should conduct an annual review of the frauds and place a note before
the Board of Directors/Local Advisory Board for information. The reviews for
the year-ended March may be put up to the Board before the end of the next
quarter i.e. quarter ended June 30th. Such reviews need not be sent to RBI

9
 but may be preserved for verification by the Reserve Bank’s inspecting
officers.

6.3.2 The main aspects which may be taken into account while making such a
review may include the following:

(a) Whether the systems in the bank are adequate to detect frauds, once
they have taken place, within the shortest possible time.

(b) Whether frauds are examined from staff angle and, wherever
necessary, the cases are reported to the Vigilance Cell for further
action in the case of public sector banks.

(c) Whether deterrent punishment is meted out, wherever warranted, to

the persons found responsible.

(d) Whether frauds have taken place because of laxity in following the
systems and procedures and, if so, whether effective action has been
taken to ensure that the systems and procedures are scrupulously
followed by the staff concerned.

(e) Whether frauds are reported to local Police or CBI, as the case may
be, for investigation, as per the guidelines issued in this regard to
public sector banks by Government of India.

6.3.3 The annual reviews should also, among other things, include the following
details:

(a) Total number of frauds detected during the year and the amount
involved as compared to the previous two years.

(b) Analysis of frauds according to different categories detailed in

Paragraph 2.1 and also the different business areas indicated in the
Quarterly Report on Frauds Outstanding (vide FMR 2).

(c) Modus operandi of major frauds reported during the year along with
their present position.

(d) Detailed analysis of frauds of `0.1 million and above.

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 (e) Estimated loss to the bank during the year on account of frauds,
amount recovered and provisions made.

(f) Number of cases (with amounts) where staff are involved and the
action taken against staff.

(g) Region-wise/Zone-wise/State-wise break-up of frauds and amount

involved.

(h) Time taken to detect frauds (number of cases detected within three
months, six months and one year of their taking place).

(i) Position with regard to frauds reported to CBI/Police.

(j) Number of frauds where final action has been taken by the bank and
cases disposed of.

(k) Preventive/punitive steps taken by the bank during the year to

reduce/minimise the incidence of frauds.

6.3.4 Banks may ensure to place the copy of the circular on modus-operandi of
fraud issued by them for alerting their branches/controlling offices etc., on
specific frauds before the Audit Committee of Board (ACB) in its periodical
meetings.

6.4 Special committee of the Board

6.4.1 While Audit Committee of the Board (ACB) may continue to monitor all
the cases of frauds in general, banks are required to constitute a Special
Committee of the Board for monitoring and follow up of cases of frauds
(SCBF) involving amounts of ₹10 million and above exclusively. The
Special Committee may be constituted with five members of the Board of
Directors, consisting of MD & CEO in case of public sector banks and MD
in case of SBI, its Associates and private sector banks, two members
from ACB and two other members from the Board excluding RBI
nominee. The periodicity of the meetings of the Special Committee may
be decided according to the number of cases involved. In addition, the

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 Committee should meet and review as and when a fraud involving an
amount of `10 million and above comes to light.

6.4.2 The major functions of the Special Committee would be to monitor and
review all the frauds of ₹10 million and above so as to:

• Identify the systemic lacunae if any that facilitated perpetration

of the fraud and put in place measures to plug the same.

• Identify the reasons for delay in detection, if any, reporting to

top management of the bank and RBI.

• Monitor progress of CBI/Police investigation and recovery

position.

• Ensure that staff accountability is examined at all levels in all

the cases of frauds and staff side action, if required, is
completed quickly without loss of time.

• Review the efficacy of the remedial action taken to prevent

recurrence of frauds, such as strengthening of internal controls.

6.4.3 The banks may delineate in a policy document the processes for
implementation of the Committee's directions and the document may
enable a dedicated outfit of the bank to implement the directions in this
regard.

6.4.4 To align the vigilance function in Private sector and Foreign Banks to that
of the Public Sector Banks the existing vigilance functions of a few private
sector and foreign banks were mapped with the existing guidelines in the
matter and it was observed that the practices vary widely among the
banks. The detailed guidelines for private sector and foreign banks were
issued on May 26, 2011 to address all issues arising out of lapses in the
functioning of the private sector and foreign banks especially relating to
corruption, malpractices, frauds etc. for timely and appropriate action. The

12
 detailed guidelines are aimed at bringing uniformity and rationalization in
the function of internal vigilance. Private sector banks (including foreign
banks operating in India) were advised to put in place a system of internal
vigilance machinery as per the guidelines.

7. CASES OF ATTEMPTED FRAUD

7.1 Banks need not report cases of attempted frauds of ₹10 million and above
to Reserve Bank of India, in terms of circular DBS.FrMC.BC.No.04/
23.04.001/2012-13 dated November 15, 2012. However, banks should
continue to place the report on individual cases of attempted fraud
involving an amount of ₹10 million and above before the Audit Committee
of its Board. The report should cover the following viz.

• The modus operandi of the attempted fraud.

• How the attempt did not materialize into fraud or how the attempt
failed/ was foiled.
• The measures taken by the bank to strengthen the existing systems
and controls.
• New systems and controls put in place in the area where fraud was
attempted.

7.2 Further, a consolidated review of such cases detected during the year
containing information such as area of operations where such attempts
were made, effectiveness of new processes and procedures put in place
during the year, trend of such cases during the last three years, need for
further change in processes and procedures, if any, etc. as on March 31
every year may be put up to the ACB within three months of the end of
the relative year.

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8. CLOSURE OF FRAUD CASES

8.1 Banks will report to CFMC, RBI and the respective Regional offices of the
DBS/SBMD/SSM, the details of fraud cases of ₹0.1 million and above
closed along with reasons for the closure after completing the process as
given below.

8.2 Fraud cases closed during the quarter are required to be reported
quarterly through FMR 3 return and cross checked with relevant column
in FMR 2 return before sending to RBI.

8.3 Banks should report only such cases as closed where the actions as
stated below are complete and prior approval is obtained from the
respective Regional Offices of DBS/SSM/SBMD.
i. The fraud cases pending with CBI/Police/Court are finally disposed
of.
ii. The examination of staff accountability has been completed
iii. The amount of fraud has been recovered or written off.
iv. Insurance claim wherever applicable has been settled.
v. The bank has reviewed the systems and procedures, identified as
the causative factors and plugged the lacunae and the fact of which
has been certified by the appropriate authority (Board / Audit
Committee of the Board)

8.4 Banks should also pursue vigorously with CBI for final disposal of
pending fraud cases especially where the banks have completed staff
side action. Similarly, banks may vigorously follow up with the police
authorities and/or court for final disposal of fraud cases.

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8.5 Banks are allowed, for limited statistical / reporting purposes, to close
those fraud cases involving amounts up to ₹2.5 million, where:

a) The investigation is on or challan/ charge sheet has not been filed in

the Court for more than three years from the date of filing of First
Information Report (FIR) by the CBI/Police or

b) The trial in the courts, after filing of charge sheet/challan by CBI /

Police, has not started or is in progress.

8.6 The banks are required to follow the guidelines relating to seeking prior
approval for closure of such cases from the RO of DBS under whose
jurisdiction the Head Office of the bank is located or the SSM/SBMD and
follow up of such cases after closure as enumerated in RBI circular
DBS.CO.FrMC BC.NO.7/23.04.001/2008-09 dated June 05, 2009.

9. GUIDELINES FOR REPORTING FRAUDS TO POLICE/CBI

9.1 In dealing with cases of fraud/embezzlement, banks should not merely be
actuated by the necessity of recovering expeditiously the amount involved,
but should also be motivated by public interest and the need for ensuring
that the guilty persons do not go unpunished. Therefore, as a general rule,
the following cases should invariably be referred to the State Police or to
the CBI as detailed below:

Category of Amount involved in Agency to whom Remarks

bank the fraud complaint should
be lodged
Private ₹10000 and above State Police If committed by staff
Sector/ ₹0.1 million and State Police If committed by outsiders on
Foreign above their own and/or with the
Banks connivance of bank
staff/officers.
₹10 million and In addition to Details of the fraud are to be
above State Police, reported to SFIO in FMR 1

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 SFIO, Ministry of Format.
Corporate Affairs,
Government of
India. Second
Floor, Paryavaran
Bhavan, CGO
Complex, Lodhi
Road, New Delhi
110 003.
Public Below ₹30 million State Police To be lodged by the bank
Sector 1. Above `10,000/- To the local police branch concerned
Banks but below `0.1 million station
2. `0.1 million and To the State To be lodged by the Regional
above involving CID/Economic Head of the bank concerned
outsiders and bank Offences Wing of
staff the State
concerned
₹30 million and above CBI To be lodged with Anti
and up to ₹250 million
Corruption Branch of CBI
(where staff involvement is
prima facie evident)
Economic Offences Wing of
CBI (where staff involvement
is prima facie not evident)

More than ₹250 CBI To be lodged with Banking

million and up to
Security and Fraud Cell
₹500 million
(BSFC) of CBI (irrespective of
the involvement of a public
servant)
More than `500 CBI To be lodged with the Joint
million
Director (Policy) CBI, HQ
New Delhi

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9.2 All fraud cases of value below ₹10,000/- involving bank officials, should be
referred to the Regional Head of the bank, who would scrutinize each
case and direct the bank branch concerned on whether it should be
reported to the local police station for further legal action.

10. CHEQUE RELATED FRAUDS, PRECAUTIONS TO BE TAKEN AND

REPORTING TO RBI AND THE POLICE

10.1 In view of the rise in the number of cheque related fraud cases, which
could have been avoided had due diligence been observed at the time of
handling and/or processing the cheques and monitoring newly opened
accounts, banks were advised to review and strengthen the controls in the
cheque presenting/passing and account monitoring processes and to
ensure that all procedural guidelines including preventive measures are
followed meticulously by the dealing staff/officials.
(DBS.CO.CFMC.BC.006/23.04.001/2014-15 dated November 5, 2014)
Banks were also given an illustrative list of some of the preventive
measures they may follow in this regard viz.

I. Ensuring the use of 100% CTS - 2010 compliant cheques.

II. Strengthening the infrastructure at the cheque handling Service
Branches and bestowing special attention on the quality of
equipment and personnel posted for CTS based clearing, so that it
is not merely a mechanical process.
III. Ensuring that the beneficiary is KYC compliant so that the bank has
recourse to him/her as long as he/she remains a customer of the
bank.
IV. Examination under UV lamp for all cheques beyond a threshold of
say, `0.2 million.
V. Checking at multiple levels, of cheques above a threshold of say,
`0.5 million.
VI. Close monitoring of credits and debits in newly opened transaction
accounts based on risk categorization.

17
 VII. Sending an SMS alert to payer/drawer when cheques are received
in clearing.
Banks were also advised that the threshold limits mentioned above can be
reduced or increased at a later stage with the approval of the Board
depending on the volume of cheques handled by the bank or it's risk
appetite.

10.2 Banks may also consider the following preventive measures for dealing
with suspicious or large value cheques (in relation to an account’s normal
level of operations):

a) Alerting the customer by a phone call and getting the confirmation

from the payer/drawer.
b) Contacting base branch in case of non-home cheques.
The above may be resorted to selectively if not found feasible to be
implemented systematically.

10.3 It has been reported that in some cases even though the original cheques
were in the custody of the customer, cheques with the same series had
been presented and encashed by fraudsters. In this connection, banks
are advised to take appropriate precautionary measures to ensure that the
confidential information viz., customer name / account number / signature,
cheque serial numbers and other related information are neither
compromised nor misused either from the bank or from the vendors’
(printers, couriers etc.) side. Due care and secure handling is also to be
exercised in the movement of cheques from the time they are tendered
over the counters or dropped in the collection boxes by customers.

10.4 To ensure uniformity and to avoid duplication, reporting of frauds involving

forged instruments including fake/forged instruments sent in clearing in
respect of truncated instruments will continue to be done by the paying
banker and not by the collecting banker. In such cases the presenting
bank will be required to immediately hand over the underlying instrument

18
 to drawee/paying bank as and when demanded to enable it to file an FIR
with the police authorities and report the fraud to RBI. It is the paying
banker who has to file the police complaint and not the collecting banker.

10.5 However, in the case of collection of an instrument which is genuine but

the amount is collected fraudulently by a person who is not the true owner
or where the amount has been credited before realisation and
subsequently the instrument is found to be fake/forged and returned by
the paying bank, the collecting bank, which is defrauded or is at loss by
paying the amount before realisation of the instrument, will have to file
both the fraud report with the RBI and complaint with the police.

10.6 In case of collection of altered/fake cheque involving two or more

branches of the same bank, the branch where the altered/fake cheque has
been encashed, should report the fraud to its Head Office. Similarly in the
event of an altered/fake cheque having been paid/encashed involving two
or more branches of a bank under Core Banking Solution (CBS), the
branch which has released the payment should report the fraud to the
Head Office. Thereafter, Head Office of the bank will file the fraud report
with RBI and also file the Police complaint.

11. LOAN FRAUDS - NEW FRAMEWORK

11.1 Based on the recommendations of an Internal Working Group constituted
by the Bank , a framework for dealing with loan frauds was put in place
vide circular DBS.CO.CFMC.BC.No.007/23.04.001/2014-15 dated May 7,
2015.

11.2 Objective of the framework

The objective of the framework is to direct the focus of banks on the

aspects relating to prevention, early detection, prompt reporting to the
RBI (for system level aggregation, monitoring & dissemination) and the
investigative agencies (for instituting criminal proceedings against the

19
 fraudulent borrowers) and timely initiation of the staff accountability
proceedings (for determining negligence or connivance, if any) while
ensuring that the normal conduct of business of the banks and their risk
taking ability is not adversely impacted and no new and onerous
responsibilities are placed on the banks. In order to achieve this objective,
the framework has stipulated time lines with the action incumbent on a
bank. The time lines / stage wise actions in the loan life-cycle are
expected to compress the total time taken by a bank to identify a fraud
and aid more effective action by the law enforcement agencies. The early
detection of Fraud and the necessary corrective action are important to
reduce the quantum of loss which the continuance of the Fraud may
entail.

11.3 Early Warning Signals (EWS) and Red Flagged Accounts (RFA)

11.3.1 A Red Flagged Account (RFA) is one where a suspicion of fraudulent

activity is thrown up by the presence of one or more Early Warning
Signals (EWS). These signals in a loan account should immediately put
the bank on alert regarding a weakness or wrong doing which may
ultimately turn out to be fraudulent. A bank cannot afford to ignore such
EWS but must instead use them as a trigger to launch a detailed
investigation into a RFA.

11.3.2 An illustrative list of some EWS is given for the guidance of banks in
Annex II to this circular. Banks may choose to adopt or adapt the relevant
signals from this list and also include other alerts/signals based on their
experience, client profile and business models. The EWS so compiled by
a bank would form the basis for classifying an account as a RFA.

11.3.3 The threshold for EWS and RFA is an exposure of `500 million or more at
the level of a bank irrespective of the lending arrangement (whether solo
banking, multiple banking or consortium). All accounts beyond `500
million classified as RFA or ‘Frauds’ must also be reported on the CRILC

20
 data platform together with the dates on which the accounts were
classified as such. The CRILC data platform is being enhanced to provide
this capability. As of now, this requirement is in addition to the extant
requirements of reporting to RBI as mentioned in Para 3 above.

11.3.4 The modalities for monitoring of loan frauds below `500 million threshold
is left to the discretion of banks. However, banks may continue to report all
identified accounts to CFMC, RBI as per the existing cut-offs.

11.3.5 The tracking of EWS in loan accounts should not be seen as an additional
task but must be integrated with the credit monitoring process in the bank
so that it becomes a continuous activity and also acts as a trigger for any
possible credit impairment in the loan accounts, given the interplay
between credit risks and fraud risks. In respect of large accounts it is
necessary that banks undertake a detailed study of the Annual Report as
a whole and not merely of the financial statements, noting particularly the
Board Report and the Managements’ Discussion and Analysis Statement
as also the details of related party transactions in the notes to accounts.
The officer responsible for the operations in the account, by whatever
designation called, should be sensitised to observe and report any
manifestation of the EWS promptly to the Fraud Monitoring Group (FMG)
or any other group constituted by the bank for the purpose immediately.
To ensure that the exercise remains meaningful, such officers may be
held responsible for non-reporting or delays in reporting.
11.3.6 The FMG should report the details of loan accounts of `500 million and
above in which EWS are observed, together with the decision to classify
them as RFAs or otherwise to the CMD/CEO every month.

11.3.7 A report on the RFA accounts may be put up to the Special Committee of
the Board for monitoring and follow-up of Frauds (SCBF) providing, inter
alia, a synopsis of the remedial action taken together with their current
status.

21
11.4 Early Detection and reporting
11.4.1 At present the detection of frauds takes an unusually long time. Banks
tend to report an account as fraud only when they exhaust the chances of
further recovery. Among other things, delays in reporting of frauds also
delays the alerting of other banks about the modus operandi through
caution advices by RBI that may result in similar frauds being perpetrated
elsewhere. More importantly, it delays action against the unscrupulous
borrowers by the law enforcement agencies which impact the
recoverability aspects to a great degree and also increases the loss
arising out of the fraud.

11.4.2 The most effective way of preventing frauds in loan accounts is for banks
to have a robust appraisal and an effective credit monitoring mechanism
during the entire life-cycle of the loan account. Any weakness that may
have escaped attention at the appraisal stage can often be mitigated in
case the post disbursement monitoring remains effective. In order to
strengthen the monitoring processes, based on an analysis of the
collective experience of the banks, inclusion of the following checks /
investigations during the different stages of the loan life-cycle may be
carried out:

a) Pre-sanction: As part of the credit process, the checks being applied

during the stage of pre-sanction may consist of the Risk Management
Group (RMG) or any other appropriate group of the bank collecting
independent information and market intelligence on the potential
borrowers from the public domain on their track record, involvement in
legal disputes, raids conducted on their businesses, if any, strictures
passed against them by Government agencies, validation of submitted
information/data from other sources like the ROC, gleaning from the
defaulters list of RBI/other Government agencies, etc., which could be
used as an input by the sanctioning authority. Banks may keep the

22
 record of such pre-sanction checks as part of the sanction
documentation.

b) Disbursement: Checks by RMG during the disbursement stage may

focus on the adherence to the terms and conditions of sanction,
rationale for allowing dilution of these terms and conditions, level at
which such dilutions were allowed, etc. The dilutions should strictly
conform to the broad framework laid down by the Board in this regard.
As a matter of good practice, the sanctioning authority may specify
certain terms and conditions as ‘core’ which should not be diluted. The
RMG may immediately flag the non-adherence of core stipulations to
the sanctioning authority.

c) Annual review: While the continuous monitoring of an account

through the tracking of EWS is important, banks also need to be
vigilant from the fraud perspective at the time of annual review of
accounts. Among other things, the aspects of diversion of funds in an
account, adequacy of stock vis-a-vis stock statements, stress in group
accounts, etc., must also be commented upon at the time of review.
Besides, the RMG should have capability to track market
developments relating to the major clients of the bank and provide
inputs to the credit officers. This would involve collecting information
from the grapevine, following up stock market movements, subscribing
to a press clipping service, monitoring databases on a continuous
basis and not confining the exercise only to the borrowing entity but to
the group as a whole.

11.5 Staff empowerment: Employees should be encouraged to report

fraudulent activity in an account, along with the reasons in support of their
views, to the appropriately constituted authority, under the Whistle Blower
Policy of the bank, who may institute a scrutiny through the FMG. The
FMG may ‘hear’ the concerned employee in order to obtain necessary

23
 clarifications. Protection should be available to such employees under the
whistle blower policy of the bank so that the fear of victimisation does not
act as a deterrent.

11.6 Role of Auditors: During the course of the audit, auditors may come
across instances where the transactions in the account or the documents
point to the possibility of fraudulent transactions in the account. In such a
situation, the auditor may immediately bring it to the notice of the top
management and if necessary to the Audit Committee of the Board (ACB)
for appropriate action.

11.7 Incentive for Prompt Reporting: In case of accounts classified as ‘fraud’,

banks are required to make provisions to the full extent immediately,
irrespective of the value of security. However, in case a bank is unable to
make the entire provision in one go, it may now do so over four quarters
provided there is no delay in reporting (cf. Circular
DBR.No.BP.BC.83/21.04.048/ 2014-15 dated April 01, 2015). In case of
delays, the banks under Multiple Banking Arrangements (MBA) or
member banks in the consortium are required to make the provision in one
go in terms of the said circular. Delay, for the purpose of this circular,
would mean that the fraud was not flashed to CFMC, RBI or reported on
the CRILC platform, RBI within a period of one week from its (i)
classification as a fraud through the RFA route which has a maximum time
line of six months or (ii) detection/declaration as a fraud ab initio by the
bank as hitherto.

11.8 Bank as a sole lender

11.8.1 In cases where the bank is the sole lender, the FMG will take a call on
whether an account in which EWS are observed should be classified as a
RFA or not. This exercise should be completed as soon as possible and in
any case within a month of the EWS being noticed. In case the account is
classified as a RFA, the FMG will stipulate the nature and level of further

24
 investigations or remedial measures necessary to protect the bank’s
interest within a stipulated time which cannot exceed six months.

11.8.2 The bank may use external auditors, including forensic experts or an
internal team for investigations before taking a final view on the RFA. At
the end of this time line, which cannot be more than six months, banks
would either lift the RFA status or classify the account as a fraud.

11.8.3 A report on the RFA accounts may be put up to the SCBF with the
observations/decision of the FMG. The report may list the
EWS/irregularities observed in the account and provide a synopsis of the
investigations ordered / remedial action proposed by the FMG together
with their current status.

11.9 Lending under Consortium or Multiple Banking Arrangements

11.9.1 Certain unscrupulous borrowers enjoying credit facilities under "multiple
banking arrangement” after defrauding one of the financing banks, continue
to enjoy the facilities with other financing banks and in some cases avail
even higher limits at those banks. In certain cases the borrowers use the
accounts maintained at other financing banks to siphon off funds by diverting
from the bank on which the fraud is being perpetrated. This is due to lack of
a formal arrangement for exchange of information among various lending
banks/FIs. In some of the fraud cases, the securities offered by the
borrowers to different banks are the same.

11.9.2 In view of this, all the banks which have financed a borrower under 'multiple
banking' arrangement should take co-ordinated action, based on commonly
agreed strategy, for legal / criminal actions, follow up for recovery, exchange
of details on modus operandi, achieving consistency in data / information on
frauds reported to Reserve Bank of India. Therefore, bank which detects a
fraud is required to immediately share the details with all other banks in the
multiple banking arrangements.

25
11.9.3 In case of consortium arrangements, individual banks must conduct their
own due diligence before taking any credit exposure and also
independently monitor the end use of funds rather than depend fully on
the consortium leader. However, as regards monitoring of Escrow
Accounts, the details may be worked out by the consortium and duly
documented so that accountability can be fixed easily at a later stage.
Besides, any major concerns from the fraud perspective noticed at the
time of annual reviews or through the tracking of early warning signals
should be shared with other consortium / multiple banking lenders
immediately as hitherto.

11.9.4 The initial decision to classify any standard or NPA account as RFA or
Fraud will be at the individual bank level and it would be the responsibility
of this bank to report the RFA or Fraud status of the account on the CRILC
platform so that other banks are alerted. Thereafter, within 15 days, the
bank which has red flagged the account or detected the fraud would ask
the consortium leader or the largest lender under MBA to convene a
meeting of the JLF to discuss the issue. The meeting of the JLF so
requisitioned must be convened within 15 days of such a request being
received. In case there is a broad agreement, the account would be
classified as a fraud; else based on the majority rule of agreement
amongst banks with at least 60% share in the total lending, the account
would be red flagged by all the banks and subjected to a forensic audit
commissioned or initiated by the consortium leader or the largest lender
under MBA. All banks, as part of the consortium or multiple banking
arrangement, would share the costs and provide the necessary support for
such an investigation.

11.9.5 The forensic audit must be completed within a maximum period of three
months from the date of the JLF meeting authorizing the audit. Within 15
days of the completion of the forensic audit, the JLF will reconvene and
decide on the status of the account, either by consensus or the majority

26
 rule as specified above. In case the decision is to classify the account as a
fraud, the RFA status would change to Fraud in all banks and reported to
RBI and on the CRILC platform within a week of the said decision.
Besides, within 15 days of the RBI reporting, the bank commissioning/
initiating the forensic audit would lodge a complaint with the CBI on behalf
of all banks in the consortium/MBA.

11.9.6 It may be noted that the overall time allowed for the entire exercise to be
completed is six months from the date when the first member bank
reported the account as RFA or Fraud on the CRILC platform.

11.10 Staff Accountability

11.10.1 As in the case of accounts categorised as NPAs, banks must initiate and
complete a staff accountability exercise within six months from the date of
classification as a Fraud. Wherever felt necessary or warranted, the role of
sanctioning official(s) may also be covered under this exercise. The
completion of the staff accountability exercise for frauds and the action
taken may be placed before the SCBF and intimated to the RBI at
quarterly intervals as hitherto.

11.10.2 Banks may bifurcate all fraud cases into vigilance and non-vigilance.
Only vigilance cases should be referred to the investigative authorities.
Non-vigilance cases may be investigated and dealt with at the bank level
within a period of six months.

11.10.3 In cases involving very senior executives of the bank, the Board / ACB/
SCBF may initiate the process of fixing staff accountability.

11.10.4 Staff accountability should not be held up on account of the case being
filed with law enforcement agencies. Both the criminal and domestic
enquiry should be conducted simultaneously.

11.11 Filing Complaints with Law Enforcement Agencies

27
11.11.1 Banks are required to lodge the complaint with the law enforcement
agencies immediately on detection of fraud. There should ideally not be
any delay in filing of the complaints with the law enforcement agencies
since delays may result in the loss of relevant ‘relied upon’ documents,
non-availability of witnesses, absconding of borrowers and also the money
trail getting cold in addition to asset stripping by the fraudulent borrower.

11.11.2 It is observed that banks do not have a focal point for filing CBI / Police
complaints. This results in a non-uniform approach to complaint filing by
banks and the investigative agency has to deal with dispersed levels of
authorities in banks. This is among the most important reasons for delay in
conversion of complaints to FIRs. It is, therefore, enjoined on banks to
establish a nodal point / officer for filing all complaints with the CBI on
behalf of the bank and serve as the single point for coordination and
redressal of infirmities in the complaints.

11.11.3 The complaint lodged by the bank with the law enforcement agencies
should be drafted properly and invariably be vetted by a legal officer. It is
also observed that banks sometimes file complaints with CBI / Police on
the grounds of cheating, misappropriation of funds, diversion of funds etc.,
by borrowers without classifying the accounts as fraud and/or reporting the
accounts as fraud to RBI. Since such grounds automatically constitute the
basis for classifying an account as a fraudulent one, banks may invariably
classify such accounts as frauds and report the same to RBI.

11.12 Penal measures for fraudulent borrowers

11.12.1 In general, the penal provisions as applicable to wilful defaulters would
apply to the fraudulent borrower including the promoter director(s) and
other whole time directors of the company insofar as raising of funds from
the banking system or from the capital markets by companies with which
they are associated is concerned, etc. In particular, borrowers who have
defaulted and have also committed a fraud in the account would be

28
 debarred from availing bank finance from Scheduled Commercial Banks,
Development Financial Institutions, Government owned NBFCs,
Investment Institutions, etc., for a period of five years from the date of full
payment of the defrauded amount. After this period, it is for individual
institutions to take a call on whether to lend to such a borrower. The penal
provisions would apply to non-whole time directors (like nominee directors
and independent directors) only in rarest of cases based on conclusive
proof of their complicity.

11.12.2 No restructuring or grant of additional facilities may be made in the case

of RFA or fraud accounts.

11.12.3 No compromise settlement involving a fraudulent borrower is allowed

unless the conditions stipulate that the criminal complaint will be
continued.

11.12.4 In addition to above borrower- fraudsters, third parties such as builders,

warehouse/cold storage owners, motor vehicle/tractor dealers, travel agents,
etc. and professionals such as architects, valuers, chartered accountants,
advocates, etc. are also to be held accountable if they have played a vital role
in credit sanction/disbursement or facilitated the perpetration of frauds. Banks
are advised to report to Indian Banks Association (IBA) the details of such
third parties involved in frauds as advised vide circular
DBS.CO.FrMC.BC.No.3/23.08.001/2008-09 dated March 16, 2009.

11.12.5 Before reporting to IBA, banks have to satisfy themselves of the involvement
of third parties concerned and also provide them with an opportunity of being
heard. In this regard the banks should follow normal procedures and the
processes followed should be suitably recorded. On the basis of such
information, IBA would, in turn, prepare caution lists of such third parties for
circulation among the banks.

29
12. REPORTING CASES OF THEFT, BURGLARY, DACOITY AND BANK
ROBBERIES
12.1 Banks should arrange to report by fax / e-mail instances of bank robberies,
dacoities, thefts and burglaries to the following authorities immediately on
their occurrence.

a) CFMC, Bengaluru

b) RO of DBS/SSM/SBMD under whose jurisdiction the Head Office of

the bank falls.

c) RO of DBS under whose jurisdiction the affected bank branch is

located to enable the Regional Office to take up the issues regarding
security arrangements in affected branch/es during the State Level
Security Meetings with the concerned authorities.

d) The Security Adviser, Central Security Cell, Reserve Bank of India,

Central Office Building, Mumbai - 400 001.

e) Ministry of Finance, Department of Financial Services Government of

India, Jeevan Deep, Parliament Street, New Delhi-110 001.

The report should include details of modus operandi and other

information as at columns 1 to 11 of FMR 4.

12.2. Banks should also submit to CFMC, Bengaluru a quarterly consolidated

statement in the format given in FMR 4 (soft copy) covering all cases
pertaining to the quarter. This may be submitted within 15 days of the end of
the quarter to which it relates.

12.3 Banks which do not have any instances of theft, burglary, dacoity and / or
robbery to report during the quarter, may submit a nil report.

30
 Annex I

List of banks under the supervisory purview of

Senior Supervisory Managers (SSM)
Banks Under Risk Based Supervision (For Cycle 2015-16)

A. Banks Supervised by SSMs

S/No. Name of Bank

1 Punjab National Bank
2 Canara Bank
3 Bank of Baroda
4 Bank of India
5 Union Bank of India
6 Oriental Bank of Commerce
7 Indian Bank
8 IDBI Bank Ltd
9 Central Bank of India
10 Vijaya Bank
11 Syndicate Bank
12 State Bank of India
13 ICICI Bank Ltd.
14 HDFC Bank Ltd.
15 Axis Bank Ltd.
16 Yes Bank Ltd
17 Kotak Mahindra Bank Ltd.
18 IndusInd Bank Ltd.
19 Federal Bank Ltd.
20 South Indian Bank Ltd.
21 Ratnakar Bank Pvt Ltd
22 Citibank N.A.
23 Hongkong & Shanghai Banking Corporation Ltd.
24 Standard Chartered Bank
25 Deutsche Bank ( Asia )
26 DBS Bank Limited
27 BNP Paribas
28 JP Morgan Chase Bank, National Association
29 Barclays Bank Plc
30 Bank of America, National Association
31 The Royal Bank of Scotland N.V.
32 Credit Agricole Corporate and Investment Bank
33 The Bank of Tokyo - Mitsubishi UFJ, Ltd.

31
B. Banks supervised by Small Bank Monitoring Division (SBMD)

34 Bank of Nova Scotia

35 Societe Generale
36 Mizuho Corporate Bank Ltd.
37 Credit Suisse AG
38 Australia and New Zealand Banking Group Limited
39 Westpac Banking Corporation
40 Shinhan Bank
41 American Express Banking Corp.
42 Abu Dhabi Commercial Bank Ltd.
43 UBS AG
44 Sumitomo Mitsui Banking Corporation
45 Rabobank International
46 FIRSTRAND BANK
47 State Bank of Mauritius Ltd.
48 Bank of Bahrain & Kuwait BSC
49 National Australia Bank
50 Antwerp Diamond Bank NV
51 Industrial and Commercial Bank of China Limited
52 CTBC Bank
53 Woori Bank
54 Commonwealth Bank of Australia
55 United Overseas Bank Limited
56 SBERBANK
57 Bank of Ceylon
58 Mashreq Bank PSC
59 Krung Thai Bank pcl
60 Bank Internasional Indonesia
61 HSBC Bank Oman S.A.O.G
62 AB Bank Ltd
63 JSC VTB Bank
64 Sonali Bank Ltd

32
 Annex II
Some Early Warning signals which should alert the bank officials about
some wrongdoings in the loan accounts which may turn out to be
fraudulent
1. Default in payment to the banks/ sundry debtors and other statutory bodies,
etc., bouncing of the high value cheques.
2. Raid by Income tax /sales tax/ central excise duty officials.
3. Frequent change in the scope of the project to be undertaken by the
borrower.
4. Under insured or over insured inventory.
5. Invoices devoid of TAN and other details.
6. Dispute on title of the collateral securities.
7. Costing of the project which is in wide variance with standard cost of
installation of the project.
8. Funds coming from other banks to liquidate the outstanding loan amount.
9. Foreign bills remaining outstanding for a long time and tendency for bills to
remain overdue.
10. Onerous clause in issue of BG/LC/standby letters of credit.
11. In merchanting trade, import leg not revealed to the bank.
12. Request received from the borrower to postpone the inspection of the
godown for flimsy reasons.
13. Delay observed in payment of outstanding dues.
14. Financing the unit far away from the branch.
15. Claims not acknowledged as debt high.
16. Frequent invocation of BGs and devolvement of LCs.
17. Funding of the interest by sanctioning additional facilities.
18. Same collateral charged to a number of lenders.
19. Concealment of certain vital documents like master agreement, insurance
coverage.
20. Floating front / associate companies by investing borrowed money.
21. Reduction in the stake of promoter / director.
22. Resignation of the key personnel and frequent changes in the management.

33
23. Substantial increase in unbilled revenue year after year.
24. Large number of transactions with inter-connected companies and large
outstanding from such companies.
25. Significant movements in inventory, disproportionately higher than the
growth in turnover.
26. Significant movements in receivables, disproportionately higher than the
growth in turnover and/or increase in ageing of the receivables.
27. Disproportionate increase in other current assets.
28. Significant increase in working capital borrowing as percentage of turnover.
29. Critical issues highlighted in the stock audit report.
30. Increase in Fixed Assets, without corresponding increase in turnover (when
project is implemented).
31. Increase in borrowings, despite huge cash and cash equivalents in the
borrower’s balance sheet.
32. Liabilities appearing in ROC search report, not reported by the borrower in
its annual report.
33. Substantial related party transactions.
34. Material discrepancies in the annual report.
35. Significant inconsistencies within the annual report (between various
sections).
36. Poor disclosure of materially adverse information and no qualification by
the statutory auditors.
37. Frequent change in accounting period and/or accounting policies.
38. Frequent request for general purpose loans.
39. Movement of an account from one bank to another.
40. Frequent ad hoc sanctions.
41. Not routing of sales proceeds through bank.
42. LCs issued for local trade / related party transactions.
43. High value RTGS payment to unrelated parties.
44. Heavy cash withdrawal in loan accounts.
45. Non submission of original bills.

34
 Annex III
FRAUD MONITORING RETURNS

FMR 1
Report on Actual or Suspected Frauds in Banks
(Vide Paragraph 3)
Part A: Fraud Report

1. Name of the bank

2. Fraud number 1

3. Details of the branch 2

(a) Name of the branch
(b) Branch type

(c) Place

(d) District

(e) State

Instructions for compiling the Fraud Report (FMR 1):

1
Fraud number: This has been introduced with a view to facilitate computerisation and cross-
reference. The number will be an alphanumeric field consisting of the following: four alphabets (to
indicate name of bank), two digits for the year (02, 03, etc.), two digits for the quarter (01 for
January – March quarter, etc.) and the final four digits being a distinctive running number for the
fraud reported during the quarter.
2
Name of the branch: In case the fraud relates to more than one branch, indicate the name of
only one branch where the amount involved has been the highest and/or which is mainly involved
in following up the fraud. The names of the other branches may be given in the brief
history/modus operandi against item number 9.

35
4. Name of the Principal
party/account 3

5.a Area of operation where the

fraud has occurred 4

5.b Whether fraud has occurred in Yes/No

a borrowal account ?

6.a Nature of fraud 5

6.b Whether computer is used in
committing the fraud?
6.c If yes, details

7. Total amount involved 6 (` in

million)

3
Name of party: A distinctive name may be given to identify the fraud. In the case of frauds in
borrowal accounts, name of the borrowers may be given. In the case of frauds committed by
employees, the name(s) of the employee(s) could be used to identify the fraud. Where fraud has
taken place, say, in clearing account/inter-branch account, and if it is not immediately possible to
identify the involvement of any particular employee in the fraud, the same may be identified
merely as “Fraud in clearing/inter-branch account”.
4
Area of operation where the fraud has occurred: Indicate the relevant area out of those given in
column 1 of statement FMR 2 (Part A) (Cash; Deposits (Savings/Current/Term); Non-resident
accounts; Advances (Cash credit/Term Loans/Bills/Others); Foreign exchange transactions; Inter-
branch accounts; Cheques/demand drafts, etc.; Clearing, etc. accounts; Off-balance sheet
(Letters of credit/Guarantee/Co-acceptance/Others); Card/Internet - Credit Cards ; ATM/Debit
Cards ; Internet Banking ; Others).
5
Nature of fraud: Select the number of the relevant category from the following which would best
describe the nature of fraud: (1) Misappropriation and criminal breach of trust,
(2) Fraudulent encashment through forged instruments/manipulation of books of account or
through fictitious accounts and conversion of property, (3) Unauthorised credit facilities extended
for reward or for illegal gratification, (4) Negligence and cash shortages,
(5) Cheating and forgery, (6) Irregularities in foreign exchange transactions, (7) Others.
6
Total amount involved: Amounts should, at all places, be indicated in ` million up to two decimal
places.

36
8.a Date of occurrence 7

b Date of detection 8

c Reasons for delay, if any, in

detecting the fraud

d Date on which reported to RBI 9

e Reasons for delay, if any, in

reporting the fraud to RBI

9.a Brief history

b modus operandi

10. Fraud committed by

a Staff Yes/No

b Customers Yes/No

c Outsiders Yes/No

7
Date of occurrence: In case it is difficult to indicate the exact date of occurrence of fraud (for
instance, if pilferages have taken place over a period of time, or if the precise date of a borrower’s
specific action, subsequently deemed to be fraudulent, is not ascertainable), a notional date may
be indicated which is the earliest likely date on which the person is likely to have committed the
fraud (say, January 1, 2002, for a fraud which may have been committed anytime during the year
2002). The specific details, such as the period over which the fraud has occurred, may be given
in the history/modus operandi.
8
Date of detection: If a precise date is not available (as in the case of a fraud detected during the
course of an inspection/audit or in the case of a fraud being reported such on the directions of the
Reserve Bank), a notional date on which the same may be said to have been recognised as fraud
may be indicated.
9
Date of reporting to RBI: The date of reporting shall uniformly be the date of sending the
detailed fraud report in form FMR 1 to the RBI and not any date of fax or DO letter that may have
preceded it.

* Banks have to categorically mention the nature of audit the branch is subjected to viz,
concurrent audit, internal inspection, etc.

37
11.a Whether the controlling office Yes/No
(Regional/Zonal) could detect
the fraud by a scrutiny of control
returns submitted by the branch

b Whether there is need to Yes/No

improve the information system?

12.a Whether internal inspection/ Yes/No*

audit (including concurrent
audit) was conducted at the
branch(es) during the period
between the date of first
occurrence of the fraud and its
detection?

b If yes, why the fraud could not

have been detected during
such inspection/audit.

c What action has been taken for

non-detection of the fraud
during such inspection/audit

13. Action taken/proposed to be

taken
a Complaint with Police/CBI
i) Whether any complaint has Yes/No
been lodged with the
Police/CBI?

ii) If yes, name of office/ branch

of CBI/ Police

1. Date of reference

2. Present position of the case

38
 3. Date of completion of
Police/CBI investigation

4. Date of submission of
investigation report by
Police/CBI

iii) If not reported to Police/CBI,

reasons therefor

b Recovery suit with DRT/Court

i) Date of filing

ii) Present position

c Insurance claim

i) Whether any claim has been Yes/No

lodged with an insurance
company

ii) If not, reasons therefor

d Details of staff-side action

i) Whether any internal Yes/No

investigation has been/is
proposed to be conducted

ii) If yes, date of completion

iii) Whether any departmental

enquiry has been/is proposed to
be conducted
iv) If yes, give details as per
format given below:

39
 v) If not, reasons therefor

e Steps taken/proposed to be
taken to avoid such incidents

14. (a) Total amount recovered

i) Amount recovered from

party/parties concerned

ii) From insurance

iii) From other sources

(b) Extent of loss to the bank

(c) Provision held

(d) Amount written off

15. Suggestions for consideration

of RBI

Staff - side action

No. Name Desgn. Whether Date of Date of Date of Date of Punish- Details of
suspen- issue of commen- comple- issue of ment prosecution/
ded/Dt. of charge cement tion of final awar- conviction/
suspensi sheet of inquiry orders ded acquittal, etc.
on domestic
inquiry

* Mention the type/s of inspection / audit the branch is subjected to

40
Part B: Additional Information on Frauds in Borrowal Accounts
(This part is required to be completed in respect of frauds in all borrowal accounts
involving an amount of `0.5 million and above)
Sr. No. Type of Name of Party Address
party party/account

Borrowal accounts details:

Party Name Borrowal Nature of Date of Sanctioned Balance

Sr. of account Account Sanction limit outstanding
No. party/ Sr. No.
account

Borrowal account Director/proprietor details:

Name of Sr.No. Name of Address

party/account Director/Proprietor

Associate Concerns:

Name of Sr. No. Name of Associate Address

party/account Associate Concern
Concern

41
Associate Concern Director/proprietor details:

Name of Sr. No. Name of Director Address

Associate
Concern

42
 FMR 2

Quarterly Report on Frauds Outstanding

(Vide Paragraph 4.1)

Name of the bank ______________________________________

Report for the quarter ended _____________________________ DomesticOverseas

Part - A: Frauds Outstanding

(Amount in ` million)
Category Cases New cases Cases closed Cases outstanding Total Provision Amount Amount
outstanding as reported during during the as at the end of the amount held for Recovered Written
at the end of the the current current quarter quarter recovered cases during the off
previous quarter quarter outstanding current during
as at the Qtr. the
end of the current
Qtr. quarter

No. Amount No. Amount No. Amount No. Amount Amount Amount Amount Amount
(2+4-6) (3+5-7)

1 2 3 4 5 6 7 8 9 10 11 12 13

Cash
Deposits
i) Savings
(i) Current
(ii) Term

43
 Category Cases New cases Cases closed Cases outstanding Total Provision Amount Amount
outstanding as reported during during the as at the end of the amount held for Recovered Written
at the end of the the current current quarter quarter recovered cases during the off
previous quarter quarter outstanding current during
as at the Qtr. the
end of the current
Qtr. quarter

No. Amount No. Amount No. Amount No. Amount Amount Amount Amount Amount
(2+4-6) (3+5-7)

1 2 3 4 5 6 7 8 9 10 11 12 13

Non-resident
accounts
Advances
(i) Cash credit
(ii) Term Loans
(iii) Bills
(iv) Others
Foreign exchange
transactions
Inter-branch
accounts
Cheques/Demand
drafts, etc.

44
 Category Cases New cases Cases closed Cases outstanding Total Provision Amount Amount
outstanding as reported during during the as at the end of the amount held for Recovered Written
at the end of the the current current quarter quarter recovered cases during the off
previous quarter quarter outstanding current during
as at the Qtr. the
end of the current
Qtr. quarter

No. Amount No. Amount No. Amount No. Amount Amount Amount Amount Amount
(2+4-6) (3+5-7)

1 2 3 4 5 6 7 8 9 10 11 12 13
Clearing, etc.,
accounts
Off-balance sheet
(i) Letters of
credit
(ii) Guarantees
(iii) Co-
acceptance
(iv) Others
Card / Internet - (i)
Credit Cards
(ii) ATM/Debit Cards
(iii) Internet Banking

45
 Category Cases New cases Cases closed Cases outstanding Total Provision Amount Amount
outstanding as reported during during the as at the end of the amount held for Recovered Written
at the end of the the current current quarter quarter recovered cases during the off
previous quarter quarter outstanding current during
as at the Qtr. the
end of the current
Qtr. quarter

No. Amount No. Amount No. Amount No. Amount Amount Amount Amount Amount
(2+4-6) (3+5-7)

1 2 3 4 5 6 7 8 9 10 11 12 13
(iv) Others
Total

Note: For Indian banks with overseas offices/branches, the above figures relate to the domestic position. The figures in respect of
overseas branches/offices may be shown in a separate sheet in the same format as above.

46
 Part - B: Category-wise classification of frauds reported during the quarter ______________
Name of the bank ______________________________________

Misappropriation Fraudulent Unauthorised Negligence Cheating and Irregularities Others Total

and criminal encashment/ credit facility and cash forgery in foreign
breach of trust manipulation of extended for shortages exchange
Category books of account illegal transactions
and conversion gratification
of property
No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt.

Less than `0.1 million

`0.1 million and

above but less than
`10 million

`10 million and above

Total

47
 Part - C: Perpetrator-wise classification of frauds reported during the quarter___________

Name of the bank ______________________________________

Staff Customers Outsiders Staff and Staff and Customers Staff, Total
Customers Outsiders and Customers
Category
Outsiders and Outsiders
No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt.

Less than `0.1

million

`0.1 million and

above but less than
`10 million

`10 million and

above

Total

Note: 1. The above category-wise classification is mostly based on various provisions of the Indian Penal Code.
2. All amounts may be furnished in ` million up to two decimals.

48
Certificate

Certified that all frauds of `0.1 million and above reported to the Reserve Bank during the last quarter have also been reported to the
bank’s Board
and have been incorporated in Part A (Columns 4 and 5) and Parts B and C above.

Signature:
Name and Designation:

Place:
Date:

49
 FMR 3

Quarterly Progress Report on Large Value Frauds

(Vide Paragraph 4.2)

Name of the bank: ______________________________

Statement for quarter ended _______________________

Part A: Summary information

Number Amount involved

(` in million)
1. Cases outstanding
2. Cases where there is no
progress (furnish case-
wise details as per
format at Part B below)
3. Cases where there is
progress (furnish case-
wise details as per
format at Part C below)

Part - B: Details of cases where there is no progress

No. Name of Fraud No. Name of party/account Amount

branch (` in million)

50
Part - C: Case-wise details of progress

Name of party/account: ____________________________________

Name of branch/office: ____________________________________
Amount involved
(` in million) ______________________________

Fraud No : ______________________________

1. Date of first reporting

2.a Date of filing recovery suit with

DRT/Court

b Present position

3. Recoveries made up to the end

of the last quarter (` in million)

4. Recoveries made during the

quarter (` in million)

a) From party/parties
concerned

b) From insurance

c) From other sources

5. Total recoveries (3+4) (` in

million)

6. Loss to the bank (` in million)

7. Provision held (` in million)

8. Amount written off (` in million)

9. a) Date of reporting case to

Police/ CBI

51
 b) Date of completion of
Police/CBI investigation

c) Date of submission of
investigation report by
Police/CBI

10. Details of staff-side action

No. Name Desgn. Whether Date of Date of Date of Date of Punish- Details of
suspen- issue of commen- comple- issue of ment prosecution
ded/Dt. charge cement of tion of final awar- /conviction/
of sheet domestic inquiry orders ded acquittal,
suspens inquiry etc.
-ion

1.
2.
3.
4.

11. Other developments

12. Whether case closed during the Yes/No

quarter
13. Date of closure:

52
 FMR 4

Report on Dacoities/Robberies/Theft/Burglaries

(Vide Paragraph 7)

Name of the bank ______________________________________

Report for the quarter ended _____________________________

Name Add- State Type of Risk Whether Type of Date and Amount Amount Insurance Arrested
District
of ress branch classifi- a Case 12 time of involved recovered claim
10 11 Staff Robbers
branch cation currency occurrence (` in (` in settled
chest million) million) (` in
branch million)

1 2 3 4 5 6 7 8 9 10 11 12 13 14

10
Rural/Semi-urban/Urban/Metropolitan
11
High/Normal/Low
12
Dacoity/Robbery/Theft/Burglary

53
 Killed Injured Convicted Compensation paid Action Crime No. and name of Remarks
(Actual in `) taken police station at which
offence has been
Staff Robbers Others Staff Others Staff Robbers Staff Others
registered
15 16 17 18 19 20 21 22 23 24 25 26

54