RBI Cautions Banks Against ‘Lakhs’ Of Accounts Being Used For Fraud And Evergreening, Urges CFOs And Auditors To Act

Deputy Gov, Swaminathan, urged the CFOs to safeguard the integrity of financial reporting and maintain a transparent communication with the top management of the banks including the MD and CEO

The Reserve Bank of India on Tuesday cautioned banks about having several accounts being used for fraudulent transactions. During a meeting with the chief financial officers and auditors of several banks and financial institutions, the senior officials of the banking regulator issued concern about ‘lakhs’ of accounts being used for frauds and evergreening of loans. 

Addressing the meeting, Swaminathan J, Deputy Governor, RBI, pointed out, “One area that has come into sharper focus in the last couple of years is the control and management of internal accounts. We found certain banks having lakhs of such accounts with apparently no valid reason,” reported Business Standard.

Swaminathan noted that some of these accounts were being misused for conducting fraudulent transactions and evergreening of loan accounts. He urged the CFOs to keep a check on such accounts and bring these activities to the bare minimum.

He cautioned the banks to exercise more control via periodical reconciliation and urged them to report to the audit committee of the board properly.

Swaminathan noted that the CFOs must do what they can to safeguard the integrity of financial reporting and keep a minute check on the activities. He also urged the senior personnel to maintain a transparent communication with the top management of the banks including the MD and CEO.

“You should also keep alive the channel of escalation to the Chair of the Audit Committee of the Board (ACB) if a higher level of guidance is needed in any matter,” he added.

Deputy Governor, M Rajeshwar Rao, also expressed his worries about regulated entities misusing the regulation framework. “Auditors also have the responsibility of ensuring that entities provide appropriate qualitative information related to governance and control mechanisms,” he stressed.

Pointing out the challenges faced by the regulated entities from new technologies, Rao said that now banks and financial institutions are increasingly becoming more dependent on third-party service providers due to emerging technologies and are facing the cyber and outsourcing risks. He urged auditors to ensure that the management of the regulated entities appropriately evaluates the impact of these technologies on internal controls and financial reporting.