On 15-07-2024, the Reserve Bank of India (‘RBI’) issued three revised Master Directions for the Regulated Entities namely — ‘Master Directions on Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions’, ‘Master Directions on Fraud Risk Management in Urban Cooperative Banks/State Cooperative Banks/Central Cooperative Banks’, and ‘Master Directions on Fraud Risk Management in Non-Banking Financial Companies (including Housing Finance Companies)’.
Key Points:
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These Master Directions will supersede the following directions:
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These Master Directions emphasize the need for a robust internal audit and controls framework in the Regulated Entities.
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It is now expressly required that the Regulated Entities must comply with the principles of natural justice in a time-bound manner before classifying a person or entity as fraud. The judgment of the Supreme Court in State Bank of India v. Rajesh Agarwal (2023) 6 SCC 1 has to be considered for the classification.
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For early detection, prevention of fraud in the Regulated Entities, as well as timely reporting to Law Enforcement Agencies, the Framework on Early Warning Signals (EWS) and Red Flagging of Accounts has been strengthened.
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The Master Directions have mandated the requirement for Data Analytics and Market Intelligence Unit for strengthening risk management systems and framework in the Regulated Entities.
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To promote better fraud risk management systems, these Master Directions have been made applicable to Regional Rural Banks, Rural Cooperative Banks, and Housing Finance Companies as well.
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To rationalize the existing directions and to reduce compliance burden on the Regulated Entities, through these Master Directions, 36 circulars have been rescinded.
