RBI cautions banks against 'lakhs of accounts' used for fraudulent transactions, loan evergreening

RBI Deputy Governor Swaminathan J on Tuesday said at a conference of statutory auditors and chief financial officers of commercial banks and financial institutions that the central bank had found certain banks having "lakh of such accounts for certain fraudulent transactions and ever-greening of loan accounts."

“Internal accounts are high risk in nature on account of its potential for misuse,” the central bank's Deputy Governor said.

“I would also urge CFOs to invest in technology and data analytics which would empower them to provide more accurate and real-time financial insights. This not only aids in strategic decision-making but also enhances the ability to respond swiftly to any issues identified during audits or supervisory reviews,” Swaminathan said.

“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 ACB," he added.

Noting that the CFOs must protect the integrity of the financial reporting by guarding against any misadventure or intelligent interpretation of regulations or accounting standards, Swaminathan said. “I would urge the CFOs to have an eye for detail and an honest and transparent communication with the MD & CEO and the rest of the top management. You should also keep alive the channel of escalation to the Chair of the Audit Committee of the Board (ACB), if a higher level of guidance is needed in any matter."

“CFOs to maintain open and honest communication channels with auditors and bank supervisors. It is imperative to eschew the notion of hiding, withholding, or providing incomplete information to these teams,” he said.

“Transparency is key; by sharing comprehensive and accurate data, CFOs not only facilitate a smoother audit and supervision process but also reinforce the bank’s commitment to integrity and compliance," the RBI official said. "This collaboration builds trust, ensures regulatory adherence, and ultimately contributes to the financial stability and reputation of the institution."

Mentioning that CFOs should conduct thorough root cause analyses of any deficiencies observed during audits or supervisory reviews,” Swaminathan said. “Rather than implementing short-term fixes, understanding and addressing the underlying causes of these issues ensures that compliance is sustained over the long term."

"This approach helps prevent the recurrence of problems and strengthens the overall governance and control environment of the bank,” he added.