RBI Cautions Use of Internal Accounts for Frauds, Loan Evergreening

Mumbai: The Reserve Bank of India (RBI) on Wednesday raised concerns about banks having lakhs of accounts that are being used for fraud and evergreening of loans.

Speaking at the Conference of Statutory Auditors and Chief Financial Officers (CFOs) of commercial banks and All India Financial Institutions, RBI Deputy Governor Swaminathan J said, “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. Some of these accounts were also used as a conduit for certain fraudulent transactions and ever-greening of loan accounts.”

“Internal accounts are high risk in nature on account of its potential for misuse. I therefore request the CFOs to have them rationalised completely, bring them down to the essential minimum and exercise greater control through periodical reconciliation and a proper reporting to the audit committee of the Board,” added Swaminathan who is incharge of financial supervision and inspection departments.

The conference was also attended by another deputy governor M Rajeshwar Rao, by over 300 CFOs and auditors apart from Ajay Bhushan Prasad Pandey, the chairperson of the National Financial Reporting Authority and Ranjeet Kumar Agarwal, the president of the Institute of Chartered Accountants.

The deputy governor urged CFOs to invest in technology and data analytics which would help them to provide more accurate and real-time financial insights. He said CFOs must protect the integrity of the financial reporting by guarding against any misadventure or intelligent interpretation of regulations or accounting standards. On the same lines, the bank’s statutory auditors should promptly report incipient vulnerabilities to both the bank management and the RBI, he said. He asked banks to exercise greater control through periodical reconciliation and proper reporting to the audit committee of the board.

Last week governor Shaktikanta Das, during his interaction with bank chiefs, raised the issue of mule accounts (illegal accounts) and asked them to curb digital frauds.

Swaminathan said that the banking sector is at a decadal high in terms of all financial parameters and is well poised to support the growth of the Indian economy but there should be an indispensable partnership between the auditors, CFOs and financial sector regulators in safeguarding the integrity and stability of our financial institutions.