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The Reserve Bank of India (RBI) took a big decision on fraud risk management on Monday. RBI has incorporated the recommendations of the Supreme Court while making changes in the banking guidelines. Under this, now the bank will have to listen to the borrowers before putting any account in the default category.
Let us tell you that RBI has taken this big step to make the banking system easier for the customers.
RBI said in the statement, “The original instructions now clearly require that the entities (regulated entities) under the purview of the central bank should ensure compliance with the principles of natural justice in a timely manner before classifying the accounts of individuals/institutions as fraudulent, keeping in view the decision of the Supreme Court dated March 27, 2023. ” It is worth noting that in the case of SBI vs Rajesh Aggarwal, a bench headed by Chief Justice DY Chandrachud had advocated the right of the borrower to be heard before classifying an account as fraudulent.
Accounts will not be declared as defaulters arbitrarily
Earlier, banks used to declare loan takers as defaulters by sending some notices in the name of recovery. But now lenders will not be able to declare accounts as defaulters arbitrarily. RBI has clearly told all rural banks, cooperative banks and finance companies that no defaulter can be declared as defaulter unilaterally and borrowers will be given a chance to present their explanation.
RBI issued three circulars on Monday. According to these, “Under the principle of natural justice, borrowers should be given notice, given an opportunity to explain the findings of the forensic audit report and allowed to present their side before the concerned banks classify their account as fraud under the master directions.”
What impact will RBI's decision have on the banking sector?
Experts say that this instruction of RBI will have a big impact on the banking sector. Due to this, banks will have to strengthen their internal audit system and they will not be able to take arbitrary action against the customer. Due to this, lenders will keep giving all kinds of updates to the concerned authority from time to time.
Know what will be the changes?
This decision of RBI will not only change things for the customers but there will be many changes for the banks as well. Under this, banks will have to create fraud risk management which will be approved by the board. The bank will now issue show cause notices to the organizations, promoters and directors involved in the fraud and after sending the notice, they will have to be given at least 21 days to respond.
Not only this, the bank will also give detailed reasons for declaring an account as fraudulent. Along with this, banks have also been instructed to form a special team to monitor and follow up this matter.
