RBI/2008-09/508
DBS CO.FrMC BC No 8 /23.04.001/2008-09
June 24, 2009
The Chairman / Chief Executives of
All Scheduled Commercial Banks (excluding RRBs)
Dear Sir,
Frauds in borrowal accounts having multiple banking arrangements
It has come to our notice that certain unscrupulous borrowers enjoying credit
facilities under "multiple banking arrangement" have, after defrauding one of
the financing banks, continued to enjoy the facilities with other financing
banks and in some cases availed even higher limits at those banks. In certain
cases the borrowers used the accounts maintained at other financing banks to
siphon off funds fraudulently diverted from the bank on which the fraud was
perpetrated. This could be possible due to lack of a formal arrangement for
exchange of information among various lending banks. While the affected bank was
engaged in recovery / criminal action at its end, the borrowers went about
perpetrating fraud in their accounts with the other financing banks. In some of
the fraud cases reported by banks, it was revealed at a later stage that the
securities offered by the borrowers to different banks were the same.
- In this connection, we invite your attention to circular DBOD No BP BC 46 /
08.12.001/2008-09 dated September 19, 2008 issued by our Department of Banking
Operations and Development (DBOD) advising banks to strengthen the sharing of
information about the status of borrowers enjoying credit facilities under
multiple banking arrangement. The circular prescribes a system of obtaining
declaration from borrowers, exchange of information among banks on regular
intervals and obtaining regular certification by a professional regarding
compliance of various statutory prescriptions. Therefore, as part of ongoing
compliance with the instructions contained in the above circular, the banks
which have financed a borrower under multiple banking arrangement are also
required to exchange information on multilateral basis regarding incidents of
fraud, legal actions taken and covert activities / operations of the borrower
after the fraud, etc.
- Therefore, it is imperative on the part of banks to have a consolidated view
of frauds committed by a borrower on different banks so as to ascertain the
quantum of frauds, loss caused by the frauds, perceived ramifications thereof
etc. As such, all the banks which have financed a borrower under 'multiple
banking' arrangement should take co-ordinated action, based on commonly agreed
strategy, for legal / criminal actions, follow up for recovery, exchange of
details on modus operandi, achieving consistency in data / information on frauds
reported to Reserve Bank of India, etc. Preferably, the co-ordination efforts
should be driven by the bank which detects the fraud first or by the bank which
has the maximum exposure, depending on circumstances. It would therefore be
necessary for the bank which detects a fraud to immediately share the details
with all other banks in the multiple banking arrangement.
- Please acknowledge receipt.
Yours faithfully
(P K Panda)
Chief General Manager