Whalesbook
Banks are preparing to formally ask the Reserve Bank of India (RBI) for permission to conduct their own fraud investigations alongside those by law enforcement agencies (LEAs). Lenders are grappling with inconsistencies in how fraud is classified, often because information isn't shared promptly between banks and LEAs. The banks aim to enhance their internal frameworks and early warning systems to achieve greater accuracy and consistency in identifying fraudulent accounts.
Supreme Court Ruling Simplifies Process
A recent Supreme Court decision has influenced this push for parallel probes. The ruling clarified that an account does not need to undergo a personal hearing before being tagged as fraudulent. While this could speed up the classification process, it also makes robust internal verification by banks more critical. Under current rules, banks must report an account as red-flagged (RFA) to the Central Repository of Information on Large Credits within a week of an LEA launching an investigation. However, the extended timelines for LEA probes often create a significant gap.
Addressing Consortium Lending Issues
Challenges in consortium lending scenarios were also highlighted by lenders. They are proposing that the final decision on whether to classify an account as fraudulent should rest with individual banks. This would allow each institution to apply its own internal policies. Banks argue this approach would prevent accounts from being prematurely flagged as RFA until definitive fraudulent activity is established through their own investigations, thereby reducing their susceptibility to borrower-initiated legal scrutiny.