Master Circular - Frauds - Classification and Reporting - आरबीआय - Reserve Bank of India
Master Circular - Frauds - Classification and Reporting
RBI/2008- 09/30 July 01, 2008 The Chief Executives of all Dear Sir, Frauds – Classification and Reporting Please refer to our letter DBS.CO. FrMC BC No. 2 /23.04.001/2007-08 dated July 02, 2007 forwarding therewith Master Circular on 'Frauds – Classification & Reporting'. It may be noted that the Master Circular consolidates and updates all the instructions issued during the year since the date of the last Master Circular dated July 02, 2007. The Master Circular also incorporates instructions contained in certain clarifications issued by RBI to banks during the course of the year. The Master Circular has been updated as on June 30, 2008 and has been placed on the web-site of the Reserve Bank of India (www.rbi.org.in). Yours faithfully, (P. K. Panda) 3. Reporting of Frauds to Reserve Bank of India 5. Reports to the Board 6. Guidelines for Reporting of Frauds to Police 8. Reporting cases of Theft, Burglary, Dacoity and BankRobberies Formats : FMR-1 Report on Actual or Suspected Frauds in Banks FMR-2 Quarterly Report on Frauds Outstanding FMR-3 Quarterly Progress Report on Frauds FMR-4 Report on Dacoities / Robberies / Thefts / Burglaries 1.1 Incidence of frauds, dacoities, robberies, etc., in banks is a matter of concern. While the primary responsibility for preventing frauds lies with banks themselves, the Reserve Bank of India (RBI) has been advising banks from time to time about the major fraud prone areas and the safeguards necessary for prevention of frauds. pRBI has also been circulating to banks, the details of frauds of an ingenious nature not reported earlier so that banks could introduce necessary safeguards by way of appropriate procedures and internal checks.p To facilitate this ongoing process, it is essential that banks report to the Reserve Bank full information about frauds and the follow-up action taken thereon.p Banks may, therefore, adopt the reporting system for frauds as prescribed in the following paragraphs. 1.2 It has been observed that frauds are, at times, detected in banks long after their perpetration. The fraud reports are also submitted to the RBI, many a time, with considerable delay and without the required information. On certain occasions, the RBI comes to know about frauds involving large amounts only through press reports. Banks should, therefore, ensure that the reporting system is suitably streamlined so that frauds are reported without any delay. Banks must fix staff accountability in respect of delays in reporting fraud cases to the RBI. 1.3 Delay in reporting of frauds and the consequent delay in alerting other banks about the modus operandi and issue of caution advices against unscrupulous borrowers could result in similar frauds being perpetrated elsewhere. Banks may, therefore, strictly adhere to the timeframe fixed in this circular for reporting fraud cases to RBI failing which banks would be liable for penal action as prescribed under Section 47(A) of the Banking Regulation Act, 1949 (As applicable to co-operative societies). 1.4 Banks should specifically nominate a senior official who will be responsible for submitting all the returns referred to in this circular. 2.1 In order to have uniformity in reporting, frauds have been classified as under, based mainly on the provisions of the Indian Penal Code: (a) Misappropriation and criminal breach of trust. 2.2 Cases of 'negligence and cash shortages' and 'irregularities in foreign exchange transactions' referred to in item (d) & (f) above are to be reported as fraud if the intention to cheat/defraud is suspected/ proved.However, the following cases where fraudulent intention is not suspected/proved at the time of detection will be treated as fraud and reported accordingly: (a) cases of cash shortages more than Rs.10, 000.00 and (b) cases of cash shortages more than Rs.5,000.00 if detected by management/auditor/inspecting officer and not reported on the day of occurrence by the persons handling cash. 2.3 To ensure uniformity and to avoid duplication, frauds involving forged instruments may be reported only by the paying banker and not by the collecting banker. However, in the case of collection of an instrument which is genuine but the amount is collected fraudulently by a person who is not the true owner, the collecting bank, which is defrauded, will have to file fraud report with the RBI. In case of collection of instrument where the amount has been credited and withdrawn before realisation and subsequently the instrument is found to be fake/forged and returned by the paying bank, it is the collecting bank who has to file FMR-1 with the RBI as they are at loss by parting the amount before realisation of the instrument. 2.4 Cases of theft, burglary, dacoity and robbery should not be reported as fraud. Such cases may be reported separately as detailed in paragraph 8. 3. reporting of frauds to reserve bank of india 3.1 Frauds involving amounts of less than Rs. 1.00 lakh The cases of individual frauds involving amounts of less than Rs.1.00 lakh are not to be reported individually to the RBI. Statistical data in respect of such frauds should, however, be submitted to RBI in a quarterly statement as detailed in Para 4.1. 3.2 Frauds involving amounts of Rs. 1.00 lakh and above but less than Rs. 25.00 lakh The cases of individual frauds involving amounts of Rs.1.00 lakh and above but less than Rs.25.00 lakh should be reported to the Regional Office of Urban Banks Department of Reserve Bank of India, under whose jurisdiction the Head Office of the bank falls, in the format given in FMR-1, within three weeks from the date of detection. 3.3 Frauds involving amounts of Rs. 25.00 lakh and above 3.3.1 The cases of individual frauds involving amounts of Rs.25.00 lakh and above should be reported to Frauds Monitoring Cell, Department of Banking Supervision, Reserve Bank of India, Central Office, World Trade Centre, Centre-1, Cuffe Parade, Mumbai 400 005 in the format given in FMR-1, within three weeks from the date of detection. A copy of FMR-1 should also be submitted to the Regional Office of Urban Banks Department of Reserve Bank of India under whose jurisdiction the Head Office of the bank falls. 3.3.2 In addition to the requirement given at paragraph 3.3.1 above, banks may report the fraud by means of D.O. letter addressed to the Chief General Manager-in-Charge of the Department of Banking Supervision, Reserve Bank of India, Central Office, within a week of such fraud coming to the notice of the bank's Head Office. The letter may contain brief particulars of the fraud such as amount involved, nature of fraud, modus operandi in brief, name of the branch/office, names of parties involved (if they are proprietorship/partnership concerns or private limited companies, the names of proprietors, partners and directors), names of officials involved and whether the complaint has been lodged with the Police. A copy of the D.O. letter should also be endorsed to the Regional Office of Urban Banks Department of Reserve Bank of India under whose jurisdiction the bank's branch, where the fraud has been perpetrated, is functioning. 3,4 Frauds committed by unscrupulous borrowers 3.4.1 It is observed that a large number of frauds are committed by unscrupulous borrowers including companies, partnership firms/proprietary concerns and/or their directors/partners by various methods including the following: Cases of attempted fraud, where the likely loss would have been Rs. 25.00 lakh or more, had the fraud taken place, should be reported to the Frauds Monitoring Cell, Department of Banking Supervision, Reserve Bank of India, Central Office, Mumbai indicating the modus operandi and how the attempted fraud was detected. Such cases should not be included in the other returns to be submitted to the Reserve Bank. 4.1 Report on Frauds Outstanding (FMR-2) 4.1.1 Banks should submit a copy each of the Quarterly Report on Frauds Outstanding in the format given in FMR – 2 to the Regional Office of Urban Banks Department of the Reserve Bank of India under whose jurisdiction the Head Office of the bank falls within 15 days of the end of the quarter to which it relates. Banks which may not be having any fraud outstanding as at the end of a quarter should submit a nil report. 4.1.2 Part – A of the report covers details of frauds outstanding as at the end of the quarter. Parts B and C of the report give category-wise and perpetrator-wise details of frauds reported during the quarter respectively. The total number and amount of fraud cases reported during the quarter as shown in Parts B and C should tally with the totals of columns 4 and 5 in Part – A of the report. 4.1.3 Banks should furnish a certificate, as part of the above report, to the effect that all individual fraud cases of Rs. 1.00 lakh and above reported to the RBI in FMR – 1 during the quarter have also been put up to the bank’s Board of Directors and have been incorporated in Part – A (columns 4 and 5) and Parts B and C of FMR – 2. 4.2 Progress Report on Frauds (FMR-3) 4.2.1 Banks should furnish case-wise quarterly progress reports on frauds involving Rs. 1.00 lakh and above in the format given in FMR–3 to the Regional Office of Urban Banks Department of Reserve Bank of India under whose jurisdiction the bank’s Head Office is situated, within 15 days of the end of the quarter to which it relates. 4.2.2 In case of frauds where there are no developments during a quarter, a list of such cases with brief description including name of branch and date of reporting may be furnished in Part – B of FMR – 3. 4.2.3 If there are no fraud cases involving Rs.1.00 lakh and above outstanding, banks may submit a nil report. 5.1.1 Banks should ensure that all frauds of Rs. 1.00 lakh and above are reported to their Boards promptly on their detection. 5.1.2 Such reports should, among other things, take note of the failure on the part of the concerned branch officials and controlling authorities, and consider initiation of appropriate action against the officials responsible for the fraud. 5.2 Quarterly Review of Frauds 5.2.1 Information relating to frauds for the quarters ending March, June and September may be placed before the Audit Committee of the Board of Directors during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the Board/Management Committee in terms of the Calendar of Reviews prescribed by the Reserve Bank of India. 5.2.2 These should be accompanied by supplementary material analysing statistical information and details of each fraud so that the Audit Committee of the Board would have adequate material to contribute effectively in regard to the punitive or preventive aspects of frauds. 5.2.3 A separate review for the quarter ending December is not required in view of the Annual Review for the year-ending December prescribed below. 5.3.1 Banks should conduct an annual review of the frauds and place a note before the Board of Directors for information. The reviews for the year-ended December may be placed before the Board by the end of March of the following year. 5.3.2 The main aspects which may be taken into account while making such a review may include the following: (a) Whether the systems in the bank are adequate to detect frauds, once they have taken place, within the shortest possible time. 5.3.3 The annual reviews should also, among other things, include the following details: (a) Total number of frauds detected during the year and the amount involved as compared to the previous two years. (i) Number of frauds where final action has been taken by the bank and cases disposed of. 6. Guidelines for REPORTING OF frauds to Police 6.1 Banks should follow the following guidelines for reporting of frauds such as unauthorised credit facilities extended by the bank for illegal gratification, negligence and cash shortages, cheating, forgery, etc. to the State Police authorities: (a) In dealing with cases of fraud/embezzlement, banks should not merely be motivated by the necessity of recovering expeditiously the amount involved, but should also be motivated by public interest and the need for ensuring that the guilty persons do not go unpunished. 7.CLOSURE OF FRAUD CASES A: The fraud cases pending with Police / Courts are finally disposed off. B: The examination of staff accountability has been completed. C: The amount of fraud has been recovered or written off. D: Insurance claim, wherever applicable, has been settled. The bank has reviewed the systems and procedures, identified the causative factors and plugged the lacunae and the fact of which has been certified by the Board. Banks should also pursue vigorously with the Police/Court for final disposal of the pending cases especially where the banks have completed staff side action. 8. Reporting Cases of Theft, Burglary, Dacoity and Bank Robberies 8.1 Banks should arrange to report instances of bank robberies, dacoities, thefts and burglaries to the following authorities immediately on their occurrence by fax / e-mail. The report should include details of modus operandi and other information as at columns 1 to 11 of FMR – 4. (a) The Chief General Manager – in – Charge, Reserve Bank of India, Urban Banks Department, Central Office, Garment House, Worli, Mumbai 400 018. 8.2 Banks should also submit to concerned Regional Office of the Reserve Bank of India, Urban Banks Department under whose jurisdiction the bank's Head Office is situated a quarterly consolidated statement in the format given in FMR – 4 covering all cases pertaining to the quarter. This may be submitted within 15 days of the end of the quarter to which it relates. 8.3 Banks which do not have any instances of theft, burglary, dacoity and / or robbery to report during the quarter, may submit a nil report. FMR – 1 Part A: Fraud Report
* Banks have to categorically mention the nature of audit the branch is subjected to viz. concurrent audit, statutory audit, internal inspection, etc. Part B: Additional Information on Frauds in Borrowal Accounts
Instructions for compiling the Fraud Report (FMR 1): 1Fraud number: This has been introduced with a view to facilitate computerisation and cross-reference. The number will be an alphanumeric field consisting of the following: four alphabets (to indicate name of bank), two digits for the year (02, 03, etc.), two digits for the quarter (01 for January – March quarter, etc.) and the final four digits being a distinctive running number for the fraud reported during the quarter.4. 2Name of the branch: In case the fraud relates to more than one branch, indicate the name of only one branch where the amount involved has been the highest and/or which is mainly involved in following up the fraud. The names of the other branches may be given in the brief history/modus operandi against item number 9. 3Name of party: A distinctive name may be given to identify the fraud. In the case of frauds in borrowal accounts, name of the borrowers may be given. In the case of frauds committed by employees, the name(s) of the employee(s) could be used to identify the fraud. Where fraud has taken place, say, in clearing account/inter-branch account, and if it is not immediately possible to identify the involvement of any particular employee in the fraud, the same may be identified merely as “Fraud in clearing/inter-branch account”. 4 Area of operation where the fraud has occurred: Indicate the relevant area out of those given in column 1 of statement FMR 2 (Part A) (Cash; Deposits (Savings/Current/Term); Non-resident accounts; Advances (Cash credit/Term Loans/Bills/Others); Foreign exchange transactions; Inter-branch accounts; Cheques/demand drafts, etc.; Clearing, etc. accounts; Off-balance sheet (Letters of credit/Guarantee/Co-acceptance/Others); Others) 5Nature of fraud: Select the number of the relevant category from the following which would best describe the nature of fraud: (1) Misappropriation and criminal breach of trust, 6 Total amount involved: Amounts should, at all places, be indicated in Rs. lakh up to two decimal places. 7Date of occurrence: In case it is difficult to indicate the exact date of occurrence of fraud (for instance, if pilferages have taken place over a period of time, or if the precise date of a borrower’s specific action, subsequently deemed to be fraudulent, is not ascertainable), a notional date may be indicated which is the earliest likely date on which the person is likely to have committed the fraud (say, January 1, 2002, for a fraud which may have been committed anytime during the year 2002). The specific details, such as the period over which the fraud has occurred, may be given in the history/modus operandi. 8Date of detection: If a precise date is not available (as in the case of a fraud detected during the course of an inspection/audit or in the case of a fraud being reported such on the directions of the Reserve Bank), a notional date on which the same may be said to have been recognised as fraud may be indicated. 9Date of reporting to RBI: The date of reporting shall uniformly be the date of sending the detailed fraud report in form FMR 1 to the RBI and not any date of fax or DO letter that may have preceded it. FMR – 2 Name of the bank ______________________________________ DomesticOverseas Part – A: Frauds Outstanding (Amount Rs.in lakh)
Note: For Indian banks with overseas offices/branches, the above figures relate to the domestic position. The figures in respect of overseas branches/offices may be shown in a separate sheet in the same format as above. Part – B: Category-wise classification of frauds reported during the quarter ______________ Name of the bank ______________________________________
Part – C: Perpetrator-wise classification of frauds reported during the quarter ______________ Name of the bank ______________________________________
Note: 1. The above category-wise classification is mostly based on various provisions of the Indian Penal Code. Certified that all frauds of Rs. 1 lakh and above reported to the Reserve Bank during the last quarter have also been reported to the bank’s Board Signature:Name and Designation FMR – 3 Name of the bank: ________________________________ Part A: Summary information
Part – B: Details of cases where there is no progress
Part – C: Case-wise details of progress Name of party/account: ____________________________________
FMR – 4 Name of the bank ______________________________________
10Rural/Semi-urban/Urban/Metropolitan 11High/Normal/Low 11Dacoity/Robbery/Theft/Burglary 12 Dacoity/Robbery/Theft/Burglary |