The Reserve Bank of India (RBI) has decided to relax the existing norms on the closure of fraud cases by banks saying that banks would be allowed, for limited statistical or reporting purposes, to close those fraud cases involving amounts up to Rs 25 lakh, where the investigation is on challan or chargesheet not filed in the court for more than three years from the date of filing of first information report (FIR) by the police or the trial in the courts, after filing of charge sheet or challan by the police, has not started, or is in progress.
?We had been receiving representations from various banks requesting us to allow them to close the old cases of fraud in which all actions at their end were completed but the investigation by police or court cases filed by these agencies had been still pending for several years. This has been resulting in accumulation of large number of outstanding fraud cases in the records of banks, projecting an adverse picture about the banks before the stakeholders or public, thereby exposing them not only to reputational risk but also lower rating by international agencies,? said the RBI in a notification.
With regard to the cases now being made eligible for closure, the banks will have to submit their proposals, case wise, for closure to the regional office of RBI under whose jurisdiction their head offices are situated.
The cases may be closed after getting the approval of the respective regional offices of RBI.
?The banks should maintain the record of details of such cases in a separate ledger. Even after closure of the fraud cases for limited statistical purposes, banks should vigorously follow up with the investigating agencies to ensure that the investigation process is taken to its logical conclusion. The banks should continue to ensure that they are regularly and appropriately represented in the court proceedings as and when required. All the relevant records pertaining to such cases must be preserved till the cases are finally disposed of by police or courts, as the case may be,? said the RBI.
The banks may, with the approval of their respective boards, frame their own internal policy for closure of such fraud cases, incorporating the above revised norms and other internal procedures as deemed necessary, it added.
The RBI also mentioned that notwithstanding the fact that banks may close cases of fraud even when police investigation is in progress or cases are pending in the court of law, they should complete, within the prescribed time frame, the process of examination of staff accountability or conclude staff side actions.
In cases of frauds involving amounts above Rs 25 lakh, banks can close fraud cases only after the fraud cases pending with police or court have been finally disposed off, examination of staff accountability has been completed, amount of fraud has been recovered or written off, insurance claim, wherever applicable, has been settled and the bank has reviewed the systems and procedures, identified the causative factors, plugged the lacunae and the relative facts have been certified by appropriate authority, which is the board or audit committee.