The Reserve Bank of India made available an illustrative list of Early Warning Signals (EWS) which should alert bank officials about wrongdoings and frauds in loan accounts. In the background of increasing incidences of frauds in general and in loan portfolios in particular, the Reserve Bank of India brought into force the systemized framework for fraud risk management in banks. The framework also provided the banks a list containing some 45 early warning signals which should immediately put the bank on alert regarding a weakness or wrong doing in a loan account which may ultimately turnout to be fraudulent. Individual banks may add other alerts/signals based on their experience, client profile and business models. The one or more early warning signals so complied by a bank would form the basis for classifying an account as Red Flagged Accounts (RFA). In case the account is classified as a RFA, the Fraud Monitoring Group (FMG) will act upon for further investigations or remedial measures necessary to protect the bank’s interest within a stipulated time which cannot exceed six months. The bank upon identifying the fraud should also report the matter immediately to investigative agencies for instituting criminal proceedings against the fraudulent borrowers, besides reporting the same to Reserve Bank as per the above framework.
Related article: Fraud Risk Management in Banks