RBI Strengthens Fraud Risk Management in Banks 

RBI issued revised Master Directions strengthening fraud risk management in commercial banks (including Regional Rural Banks) and All India Financial Institutions (AIFIs) on 15 July 2024. These principle-based guidelines emphasize Board oversight, robust internal controls, and adherence to natural justice principles before classifying someone as a fraud. Early warning systems and red flagging of accounts are enhanced for quicker detection and reporting of frauds. This replaces previous guidelines and aims to improve the banking sector’s fraud prevention and management framework.  

In recent years, India has witnessed a significant rise in white-collar and corporate crimes, driven by rapid economic growth and technological advancements. These crimes, often committed by individuals in high social and professional positions, have a profound impact on our society and economy. They encompass fraud, embezzlement, bribery, insider trading, money laundering, and cybercrimes. Several factors contribute to this increase: 

Technological Advancements: 

The digitalization of financial transactions and corporate operations has created new opportunities for cybercrimes and financial frauds. A recent report by the Indian Cybercrime Coordination Centre (I4C) revealed that digital financial frauds accounted for a staggering INR 1.25 lakh crore over the last three years. According to the National Cybercrime Reporting Portal (NCRP), in 2023, at least INR 10,319 crore was reported to be lost by victims of digital financial fraud. 

Economic Growth: 

India’s rapid industrial and economic development has inadvertently facilitated corporate frauds. The need for effective fraud risk management is underscored by the disappearance of companies from stock exchanges. For instance, 2750 companies vanished from the Bombay Stock Exchange, highlighting the urgency of implementing robust fraud risk management measures.