In a recent revelation, it has come to the light that the Reserve Bank of India expressed shock over finding that some banks are maintaining lakhs of accounts used for fraudulent activities and evergreening loans, according to a report in Business Standard.
RBI Deputy Governor’s Address
On Tuesday, RBI Deputy Governor Swaminathan J, while addressing bank officials, including chief financial officers and auditors, pointed at that issue. “We have noticed certain banks holding lakhs of internal accounts without any valid reason,” he said . He added that most of the accounts are misused for fraudulent transactions and evergreening of loans.
High-Risk Internal Accounts
Since internal accounts can be misused, there is a major danger involved. The CFOs were instructed by Swaminathan J to rationalise these accounts and pare them down to the absolute minimum required for operations.
RBI Governor’s Concerns
Last week, RBI Governor Shaktikanta Das addressed the issue of mule accounts (illegal accounts) and emphasised the need to curb digital frauds during his meeting with bank heads.
Call for Detailed and Transparent Communication
Swaminathan J also stressed the importance of CFOs maintaining a keen eye for detail and fostering honest and transparent communication with the managing director, CEO, and other top management. “If higher-level guidance is needed, the channel of escalation to the chair of the audit committee should remain open,” he advised.
Principle-Based Regulation Framework
Deputy Governor M Rajeshwar Rao shared concerns about some regulated entities misusing the flexibility offered by the principle-based regulation framework. He highlighted issues with the impairment framework under Indian Accounting Standards, noting that some non-banking financial companies (NBFCs) primarily rely on the 30 days-past-dues (DPD) criterion for loan loss, which is not always aligned with the forward-looking approach of expected credit loss (ECL).
Enhancing Quality of Disclosures
Rao stressed that NBFCs must raise the calibre of their disclosures, especially with regard to the ECL framework. He emphasised to auditors that it is their duty to make sure entities give relevant, high-quality information about governance and control systems.
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