Lawyers, CAs more prone to loan fraud

ntermediaries such as lawyers, valuers, charte red accountants, statutory auditors, real estate developers and motor vehicle and agricultural equipment dealers have largely been found by the Reserve Bank of India to be involved in frauds in retail loans.

The central bank, in its report on trend and progr ess of banking in India for 2008-09, said there has be en a steady rise in frauds reported in the retail loan segment, with increase in retail loans portfolio of banks in recent years.

Banks have been asked to provide to the Indian Ba nks’ Association the na mes of unscrupulous intermediaries who aid the perpetration of frauds, jeopardising the interests of banks.

Banks are required to forward names of tainted intermediaries, including professionals involved in frauds, to IBA after satisfying themselves of the involvement of the third parties concerned and after providing them with an opportunity of being heard.

The RBI is also in the process of introducing a monitoring mechanism for identification of outlier ban ks, where there is high concentration of frauds. The level of risk residing in a bank would be determined after taking into account recoveries made, punitive action taken against staff involved and other steps taken by the bank with regards to the fraud.

The Reserve Bank of India is also in the process of framing guideli nes to ensure that the incidences of frauds are facto red in while carrying out supervisory review and evaluation process in the banks for the purpose of assessing the fraud risk in specific and operational risk in general.

RBI has decided to cover the fraud risk from now on during its quarterly discussions with banks. The RBI is also carrying out modifications in parameters for systems and controls comp onent of Camels (capital, asset, management, earnings, liquidity and systems) rating framework, which would reflect the status of a bank as an outlier or not ba sed on incidences of frauds and the strength/we akness es of banks’ associated systems and controls.

Based on the paramete rs, banks would be categori sed as outlier banks, RBI sa id. Once they are categor ised as outliers, the relevant information with regard to those banks would be taken up for any regulatory response.

Source:- www.mydigitalfc.com ; By Rajendra Magan Palande