In the context of the rising trend in the loan related frauds in the financial sectors is a matter of serious concern. Considering the serious threat, the Reserve Bank of India mandated a framework with an objective to direct the focus of banks on the aspects relating to prevention, early detection, prompt reporting to the Regulator and the investigative agencies and timely initiation of the staff accountability proceedings while ensuring that the normal conduct of business of the banks and their risk taking ability is not adversely impacted and no new and onerous responsibilities are placed on the banks. In order to achieve this objective, the framework also seeks to stipulate time lines with the action incumbent on a bank.
The concept of Red Flagged Accounts (RFAs) is being introduced in the RBIs framework as an important step in fraud risk control. RFA is one where a suspicion of fraudulent activity is thrown up by the presence of one or more Early Warning Signals (EWS). These signals in a loan account should immediately put the bank on alert regarding a weakness or wrongdoing which may ultimately turn out to be fraudulent.
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