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Report: RBI concerned about the misuse of hundreds of thousands of bank accounts for fraudulent activities

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The Reserve Bank of India (RBI) expressed concern over the presence of lakhs of accounts in some banks that are being used for fraudulent transactions and evergreening loans, according to a report by Business Standard. In a recent address to banks, RBI Deputy Governor Swaminathan J highlighted the issue, urging chief financial officers and auditors to take action.

Swaminathan pointed out the high-risk nature of internal accounts due to their potential for misuse, emphasizing the need for rationalization to minimize the risk of fraudulent activities. He specifically mentioned the use of some accounts for fraudulent transactions and evergreening of loans, urging banks to reduce the number of such accounts.

Last week, RBI Governor Shaktikanta Das also raised concerns about mule accounts (illegal accounts) during a meeting with bank chiefs, calling for measures to curb digital frauds. Swaminathan urged CFOs to maintain transparent communication with top management and escalate issues to the audit committee if necessary.

Deputy Governor M Rajeshwar Rao voiced concerns about regulated entities using the flexibility offered in the principle-based regulation framework in a biased manner. Rao highlighted issues related to the impairment framework prescribed under Indian Accounting Standards, noting the reliance on the 30 days-past-dues (DPD) criterion for loan loss by some non-banking financial companies.

Rao emphasized the importance of non-banking financial companies enhancing the quality of their disclosures, particularly in the context of the expected credit loss (ECL) framework. He also highlighted the responsibility of auditors in ensuring that entities provide appropriate qualitative information related to governance and control mechanisms.

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