The RBI, which mapped existing vigilance functions of a few private sector and foreign banks with the existing guidelines, found that the practices varied widely among the banks. The directive aims at bringing in such banks in line with the practices followed by state-owned banks to check frauds and other malpractices
Mumbai: The Reserve Bank of India (RBI) on Thursday asked private and foreign lenders to put in place a system of internal vigilance machinery and appoint a chief of internal vigilance (CIV) by August to check frauds and malpractices. The directive aims at bringing in such banks in line with the practices followed by state-owned banks to check frauds, reports PTI.
“In an endeavour to align the vigilance function in private sector and foreign banks to that of the public sector banks the existing vigilance functions of a few private sector and foreign banks were mapped with the existing guidelines in the matter and it was observed that the practices vary widely among the banks,” RBI said in a notification.
“It has therefore been decided to lay down detailed guidelines for private sector and foreign banks on similar lines so that all issues arising out of lapses in the functioning of the private sector and foreign banks especially relating to corruption, malpractices, frauds, etc can be addressed uniformly by the banks for timely and appropriate action,” it said.
A compliance report to this effect may be submitted to RBI on or before 31 August 2011, it said.
In a separate notification, RBI asked all the banks and financial institutions to streamline procedure for detection of fraud and recovery of misappropriated funds.
The matter assumes significance in the light of Rs460 crore fraud in Citibank’s Gurgaon branch discovered last year.
The Central Vigilance Commission (CVC) has issued guidelines to public sector banks on the appointment of Chief Vigilance Officer (CVO).
The purpose of having such system in place is to ensure that all the internal vigilance functions in the public sector banks are addressed through a set of pre-determined and structured procedures to ensure comprehensive treatment and transparency.
As per the guideline, the designated officer similar to CVO in case of public sector banks acts as a special assistant or advisor to the CEO of the concerned bank in the discharge of these functions.
An officer of suitable seniority is required to be designated as a CIV who will head the internal vigilance division of the bank, it said.
The normal tenure of a CIV would be three years extendable up to a further period of two years, it said, adding, but if the officer has to shift from one bank to another without completing the approved tenure in the previous bank, the principle of overall tenure of six years will apply.
Besides, the CIV would also acts as a liaison officer between the bank and the police or Serious Fraud Investigation Office or other law enforcement authorities, RBI said.
The guideline also said banks should identify sensitive positions and frame specific board approved internal policy on staff matters such as rotation of staff in general and in respect of sensitive desks in particular.
RBI, in another notification, said that the banks need to introduce closer monitoring and tighter controls in the above areas, as also in other such areas where there is typically certain degree of concentration of occurrence.
Further, care may be exercised while dealing with instances of wilful default, it said.
An important corrective step in a fraud is recovery of the amount siphoned off through the fraud, it said.
The central bank has also said that for key and sensitive posts such as those in dealing rooms, treasury, relationship managers for high value customers and heads of specialised branches, the banks should select only such officers who satisfy the fit and proper criteria.
The banks should immediately put in place staff rotation policy and policy for mandatory leave for staff, it said.
The banks should build up a database of officers or staff identified as those having aptitude for investigation, data analysis, forensic analysis, etc. and expose them to appropriate training in investigations and forensic audit, it said.