The Reserve Bank of India (RBI) has issued a stern warning to banks regarding the proliferation of accounts being used for fraudulent transactions and the evergreening of loans. RBI Deputy Governor Swaminathan J highlighted these concerns at a conference attended by statutory auditors and chief financial officers (CFOs) of commercial banks and financial institutions on Tuesday.
Swaminathan pointed out that several banks have been found with “lakhs of such accounts” that serve no apparent valid purpose. He emphasized that these accounts pose a significant risk due to their potential misuse, including being conduits for fraudulent activities and the artificial maintenance of loan accounts.
‘Internal accounts are high risk in nature on account of their potential for misuse,’ Swaminathan said. He urged CFOs to rationalize these accounts, reduce them to the essential minimum, and ensure greater control through regular reconciliation and proper reporting to the Audit Committee of the Board (ACB).
Swaminathan also called on CFOs to invest in technology and data analytics. This investment would empower CFOs to provide more accurate and real-time financial insights, aiding strategic decision-making and enhancing the ability to respond swiftly to issues identified during audits or supervisory reviews.
‘The CFOs must protect the integrity of the financial reporting by guarding against any misadventure or intelligent interpretation of regulations or accounting standards,’ Swaminathan stressed. He advised CFOs to maintain transparent and honest communication with their managing directors, CEOs, and other top management officials. Additionally, CFOs should keep open channels for escalation to the Chair of the ACB when higher-level guidance is required.
Swaminathan underscored the importance of transparency, urging CFOs to maintain open and honest communication with auditors and bank supervisors. ‘It is imperative to eschew the notion of hiding, withholding, or providing incomplete information to these teams,’ he stated.
‘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. This collaboration builds trust, ensures regulatory adherence, and ultimately contributes to the financial stability and reputation of the institution,’ Swaminathan concluded.
The RBI’s caution serves as a critical reminder for banks to uphold stringent controls and transparent practices to safeguard the financial system’s integrity.
