ž¸¸£·¸ú¡¸ ¹£{¸¨¸Ä ¤¸ÿˆÅ

_______ RESERVE BANK OF INDIA________

www.rbi.org.in

RBI-2013-14 /88

DBS.FrMC.BC.No.1/23.04.001/2013-14 July 01, 2013

The Chairmen & Chief Executive Officers of all

Scheduled Commercial Banks (excluding RRBs)
and All India Select Financial Institutions

Dear Sir,

Frauds – Classification and Reporting

Please refer to our letter DBS.FrMC.BC.No.1 /23.04.001/2012-13 dated July 02, 2012
forwarding the Master Circular on 'Frauds – Classification and Reporting'. It may be
noted that the Master Circular consolidates and updates all the instructions issued
during the year since the date of the last Master Circular dated July 02, 2012. The
Master Circular also incorporates instructions contained in certain clarifications issued
by RBI to banks during the course of the year. The Master Circular has been updated
as on June 30, 2013 and has been placed on the web-site of the Reserve Bank of
India (www.rbi.org.in).

Yours faithfully

Sd/-
(Parvathy V. Sundaram)
Chief General Manager

Department of Banking Supervision, Central Office, World Trade Centre 1, Cuffe Parade, Colaba, Mumbai - 400 005, INDIA
Tele: (9122) 22181281 Fax: 022 22152461 e-mail: cgmicdbsco@rbi.org.in
CONTENTS

1. INTRODUCTION .................................................................................................. 2-4

2. CLASSIFICATION OF FRAUDS ......................................................................... 4-6

3. REPORTING OF FRAUDS TO RBI .................................................................. 6-13

3.1 Frauds involving ` 1 lakh and above…………. .................................. 6-9
3.2 Frauds committed by unscrupulous borrowers ................................ 9-12
3.3 Frauds involving ` 100 lakh and above ............................................... 12
3.4 Cases of attempted frauds…… ……. ............................................ 12-13

4. QUARTERLY RETURNS ................................................................................ 13-16

4.1 Report on Frauds Outstanding…… ............................................... 13-15
4.2 Progress Report on Frauds……….. ............................................... 15-16

5. REPORTS TO THE BOARD ........................................................................... 16-20

5.1 Reporting of frauds………………........................................................ 16
5.2 Quarterly Review of Frauds…… … .......................................... 16-18
5.3 Annual Review of Frauds………… ............................................... 18-20

6. GUIDELINES FOR REPORTING FRAUDS TO POLICE/CBI ....................... 20-23

7. REPORTING CASES OF THEFT,BURGLARY,DACOITY AND BANK

ROBBERIES .................................................................................................... 23-24

ANNEX ...........................................................................................................................25

FRAUD MONITORING RETURNS

FMR-1: Report on Actual or suspected Frauds in Banks................. .... 26-33
FMR-2: Quarterly Report on Frauds Outstanding ................................. 34-41
FMR-3: Quarterly Progress Report on Frauds ...................................... 42-44
FMR-4: Report on Dacoities/Robberies/Thefts/Burglaries .................... 45-46

1
1. INTRODUCTION

1.1 Incidence of frauds, dacoities, robberies, etc., in banks is a matter of

concern. While the primary responsibility of preventing frauds lies with
banks themselves, Reserve Bank of India (RBI) has been advising them
from time to time about the major fraud prone areas and the safeguards
necessary for prevention of frauds. RBI has also been circulating to
banks, the details of frauds of an ingenious nature, not reported earlier
so that banks could introduce necessary safeguards / preventive
measures by way of appropriate procedures and internal checks. Banks
are also being advised about the details of unscrupulous borrowers and
related parties who have perpetrated frauds on other banks so that they
could exercise caution while dealing with them. To facilitate this ongoing
process, it is essential that banks report to RBI complete information
about frauds and the follow-up action taken thereon. Banks may,
therefore, adopt the reporting system for frauds as prescribed in
following paragraphs.

1.2 The Chairmen and Managing Directors(CMD)/Chief Executive Officers

(CEOs) of banks must provide focus on the "Fraud Prevention and
Management Function" to enable, among others, effective investigation
of fraud cases and prompt as well as accurate reporting to appropriate
regulatory and law enforcement authorities including Reserve Bank of
India.

1.3 The fraud risk management, fraud monitoring and fraud investigation
function must be owned by the bank's CEO, Audit Committee of the
Board and the Special Committee of the Board, at least in respect of
large value frauds.

1.4 Banks may, with the approval of their respective Boards, frame internal
policy for fraud risk management and fraud investigation function, based

2
 on the governance standards relating to the ownership of the function
and accountability for malfunctioning of the fraud risk management
process in their banks. The broad governance framework driven by the
above standard for ownership and accountability may rest on defined
and dedicated organizational set up and operating processes.

1.5 A reference is invited to paragraph 5.2.4, as regards reporting of frauds

involving ` 100 lakh and above to Special Committee of the Board.

1.6 It has been observed that frauds are, at times, detected in banks long
after their perpetration. Sometimes, fraud reports are also submitted to
RBI with considerable delay and without complete information. On some
occasions, RBI comes to know about frauds involving large amounts
only through press reports. Banks should, therefore, ensure that the
reporting system is suitably streamlined so that frauds are reported
without any delay. Banks must fix staff accountability in respect of
delays in reporting fraud cases to RBI.

1.7 Delay in reporting of frauds and the consequent delay in alerting other
banks about the modus operandi and issue of caution advices against
unscrupulous borrowers could result in similar frauds being perpetrated
elsewhere. Banks may, therefore, strictly adhere to the timeframe fixed
in this circular for reporting fraud cases to RBI failing which they would
be liable for penal action prescribed under Section 47(A) of the Banking
Regulation Act, 1949.

1.8 A software package on 'Frauds Reporting and Monitoring System' was

supplied to banks in June 2003 and subsequent revisions carried out in
the above package were advised to banks vide RBI Circular DBS.FGV
(F) No. 8897/23.10.001/2005-06 dated December 20, 2005. Banks are
required to send the FMR returns and data, as prescribed, in soft copy
only (except in case of FMR-1 return pertaining to fraud cases involving
amount of ` 1 lakh and above which is required to be submitted both in
hard and soft copies) to RBI, Central Office as well as the concerned
Regional Office of the Department of Banking Supervision/Financial

3
 Conglomerate Monitoring Division (FCMD) (12 banks listed in the
Annex) at Central Office under whose jurisdiction the bank's Head
Office/branch is situated as per the reporting requirements specified in
Para 3.1.4 below.

1.9 Banks should specifically nominate an official of the rank of General

Manager who will be responsible for submitting all the returns referred to
in this circular.

1.10 Central Fraud Monitoring Cell, Department of Banking Supervision,

Central Office located at Bengaluru will publish a directory of officers of
all banks/Financial Institutions (FI) responsible for reporting of Frauds
etc All banks/Financial Institutions should furnish to Department of
Banking Supervision, Central Fraud Monitoring Cell, Bengaluru any
changes in the names of officials that will be necessary for inclusion in
the directory on priority basis as and when called for.

2. CLASSIFICATION OF FRAUDS

2.1 In order to have uniformity in reporting, frauds have been classified as

under, based mainly on the provisions of the Indian Penal Code:

a) Misappropriation and criminal breach of trust.

b) Fraudulent encashment through forged instruments, manipulation of

books of account or through fictitious accounts and conversion of
property.

c) Unauthorised credit facilities extended for reward or for illegal

gratification.

d) Negligence and cash shortages.

e) Cheating and forgery.

f) Irregularities in foreign exchange transactions.

g) Any other type of fraud not coming under the specific heads as above.

4
2.2 Cases of 'negligence and cash shortages' and ‘irregularities in foreign
exchange transactions’ referred to in items (d) and (f) above are to be
reported as fraud if the intention to cheat/defraud is suspected/ proved.
However, the following cases where fraudulent intention is not
suspected/proved at the time of detection will be treated as fraud and
reported accordingly:

(a) cases of cash shortage more than ` 10,000/-, and

(b) cases of cash shortage more than ` 5,000/- if detected by

management / auditor/ inspecting officer and not reported on the day of
occurrence by the persons handling cash.

2.3 To ensure uniformity and to avoid duplication, frauds involving forged

instruments may be reported only by the paying banker and not by the
collecting banker. However, in the case of collection of an instrument
which is genuine but the amount is collected fraudulently by a person
who is not the true owner, the collecting bank, which is defrauded, will
have to file fraud report with the RBI. In case of collection of instrument
where the amount has been credited before realisation and
subsequently the instrument is found to be fake/forged and returned by
the paying bank, it is the collecting bank that has to file FMR-1 with the
RBI as the collecting bank is at loss by parting the amount before
realisation of the instrument.

2.3.1 The reporting of fraud in respect of truncated instruments will

continue to be done to Central Fraud Monitoring Cell of Department
of Banking Supervision at Bengaluru as well as the concerned
Regional Office of the Department of Banking Supervision/FCMD
under whose jurisdiction the bank's Head Office/branch is situated
by the paying banks as hitherto. In cases of frauds due to
fake/forged instruments sent in clearing, the presenting bank will be
required to immediately hand over the underlying instrument to
drawee/paying bank as and when demanded to enable it to file an
FIR with the police authorities and report the fraud to RBI.

5
 2.4 Encashment of altered / fake cheques involving two or more branches of
the same bank

2.4.1 In case of collection of altered/fake cheque involving two or more

branches of the same bank, the branch where the altered/fake
cheque has been encashed, should report the fraud to its Head
Office . Thereafter, Head Office of the bank will file the fraud report
with RBI.

2.4.2 In the event of an altered/fake cheque having been paid/encashed

involving two or more branches of a bank under Core Banking
Solution (CBS), there could be a possibility of dispute/difference of
opinion as to whether the branch where the drawer of the cheque
maintains the account or the branch where the encashment has
taken place should report the matter to the Head Office of the
bank. In such cases also the branch which has released the
payment against an altered / fake cheque should report the fraud
to the Head Office. Thereafter, Head Office of the bank will file the
fraud report with RBI.
2.5 Cases of theft, burglary, dacoity and robbery should not be reported as
fraud. Such cases may be reported separately as detailed in paragraph
7.

2.6 Banks (other than foreign banks) having overseas branches/offices

should report all frauds perpetrated at such branches/offices also to RBI
as per the format and procedure detailed under Paragraph 3 below.

3. REPORTING OF FRAUDS TO RESERVE BANK OF INDIA

Banks need not furnish FMR-1 return in fraud cases involving amount
below ` 1 lakh to RBI in either hard or soft copy. However, banks at their
end should make the data entry in respect of such cases through the
FRMS package individually in FMR-1 format (less than ` 1 lakh) which

6
will get automatically captured in FMR-2 return and will form part of the
consolidated database relating to frauds for the respective bank.

3.1 Frauds involving ` 1 lakh and above

3.1.1 Fraud reports should be submitted in all cases of fraud of ` 1 lakh

and above perpetrated through misrepresentation, breach of trust,
manipulation of books of account, fraudulent encashment of
instruments like cheques, drafts and bills of exchange,
unauthorised handling of securities charged to the bank,
misfeasance, embezzlement, misappropriation of funds,
conversion of property, cheating, shortages, irregularities, etc.

3.1.2 Fraud reports should also be submitted in cases where central

investigating agencies have initiated criminal proceedings suo
motto and/or where the Reserve Bank has directed that such
cases be reported as frauds.

3.1.3 Banks may also report frauds perpetrated in their subsidiaries and
affiliates/joint ventures in FMR -1 format in hard copy only. Such
frauds should, however, not be included in the report on
outstanding frauds and the quarterly progress reports referred to in
paragraph 4 below. Such frauds will not be entered in the FRMS
package at any stage. Further, in terms of circular
DBS.FrMC.BC.No.6/23.04.001/2012-13 dated May 23, 2013, in
case the subsidiary/ affiliates/joint ventures of the bank is an entity
which is regulated by Reserve Bank of India and is independently
required to report the cases of fraud to RBI in terms of guidelines
applicable to that subsidiary/affiliate/joint venture, the parent bank
need not furnish the hard copy of the FMR-1 statement in respect
of fraud cases detected at such subsidiary/affiliate/joint venture.

3.1.4 Soft copy of the reports on frauds in FMR formats in respect of

fraud cases involving amount of ` 1 lakh and above should be
submitted to the Central Office of the Department of Banking

7
 Supervision (DBS) i.e. Central Fraud Monitoring Cell located at
Bengaluru as well as to Regional Office (RO) of DBS/FCMD under
whose jurisdiction the Head office of the bank falls within three
weeks of detection of fraud. Reporting of fraud cases in hard copies
to RBI will be as under:-

a) Fraud cases involving an amount more than ` 1 lakh and upto ` 50

lakh
i) To the R.O under whose jurisdiction the branch where the fraud
has taken place is located.
ii) To the R.O under whose jurisdiction the Head Office where the
fraud has taken place is located.
Note: - In case the bank falls under the supervisory purview of
Financial Conglomerate Monitoring Division (FCMD) (12 banks listed in
the Annex.), the reporting is to be done to Reserve Bank of India,
Financial Conglomerate Monitoring Division (FCMD), Department of
Banking Supervision, Central office, 4th Floor, Centre 1, World Trade
Centre, Cuffe Parade Mumbai-400005 instead of R.O under whose
jurisdiction the Head Office where the fraud has taken place is located.

b) Fraud cases involving an amount of ` 50 lakh and above.

i) To the concerned R.O of DBS under whose jurisdiction the

Head Office where the fraud has taken place is located.
Note: - In case the bank falls under the supervisory purview of
Financial Conglomerate Monitoring Division (FCMD) (12 banks listed in
the Annex.), the reporting is to be done to Reserve Bank of India,
Financial Conglomerate Monitoring Division (FCMD), Department of
Banking Supervision, Central office, 4th Floor, Centre 1, World Trade
Centre, Cuffe Parade Mumbai-400005 instead of R.O under whose
jurisdiction the Head Office where the fraud has taken place is located.

8
 ii) To Reserve Bank of India, Central Fraud Monitoring Cell
Department of Banking Supervision, 10/3/8, Nruputhunga Road,
P.B. No. 5467 Bengaluru – 560001.

3.1.5 It is observed while scrutinizing FMR 1 returns from the banks, that
certain vital fields in the returns are left blank. As the complete particulars
on frauds perpetrated in the banks are vital for monitoring and supervisory
purposes, banks should ensure that the data furnished are
complete/accurate and up-to-date. Incidentally, if no data is to be provided
in respect of any of the items, or if details of any of the items are not
available at the time of reporting of FMR 1 return, the bank may indicate
as “no particulars to be reported” or “details not available at present” etc.
In such a situation, the banks have to collect the data and report the
details invariably through FMR 3 return on quarterly basis.

3.2 Frauds committed by unscrupulous borrowers

3.2.1 It is observed that a large number of frauds are committed by

unscrupulous borrowers including companies, partnership
firms/proprietary concerns and/or their directors/partners by
various methods including the following:

(i) Fraudulent discount of instruments or kite flying in clearing

effects.

(ii) Fraudulent removal of pledged stocks/disposing of

hypothecated stocks without the bank’s knowledge/inflating the
value of stocks in the stock statements and drawing excess bank
finance.

(iii) Diversion of funds outside the borrowing units, lack of interest or

criminal neglect on the part of borrowers, their partners, etc. and
also due to managerial failure leading to the unit becoming sick
and due to laxity in effective supervision over the operations in

9
 borrowal accounts on the part of the bank functionaries rendering
the advance difficult to recover.

3.2.2 In respect of frauds in borrowal accounts, additional information as

prescribed under Part B of FMR – 1 should also be furnished.

3.2.3 Banks should exercise due diligence while appraising the credit
needs of unscrupulous borrowers, borrower companies,
partnership/ proprietorship concerns and their directors, partners
and proprietors, etc. as also their associates who have defrauded
the banks.

In addition to above borrower- fraudsters, third parties such as

builders, warehouse/cold storage owners, motor vehicle/tractor
dealers, travel agents, etc. and professionals such as architects,
valuers, chartered accountants, advocates, etc. are also to be held
accountable if they have played a vital role in credit
sanction/disbursement or facilitated the perpetration of frauds.
Banks are advised to report to Indian Banks Association (IBA) the
details of such third parties involved in frauds as advised vide
circular DBS.CO.FrMC.BC.No.3/23.08.001/2008-09 dated March
16, 2009.

Before reporting to IBA, banks have to satisfy themselves of the

involvement of third parties concerned and also provide them with
an opportunity of being heard. In this regard the banks should
follow normal procedures and the processes followed should be
suitably recorded. On the basis of such information, IBA would, in
turn, prepare caution lists of such third parties for circulation
among the banks.

3.2.4. Frauds in borrowal accounts having multiple banking arrangements

Certain unscrupulous borrowers enjoying credit facilities under

"multiple banking arrangement” after defrauding one of the

10
 financing banks, continue to enjoy the facilities with other
financing banks and in some cases avail even higher limits at
those banks. In certain cases the borrowers use the accounts
maintained at other financing banks to siphon off funds by
diverting from the bank on which the fraud is being perpetrated.
This is due to lack of a formal arrangement for exchange of
information among various lending banks/FIs. In some of the fraud
cases, the securities offered by the borrowers to different banks
are the same.

In view of this, 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. Therefore, bank which detects
a fraud is required to immediately share the details with all other
banks in the multiple banking arrangements.

3.2.5 Forensic scrutinies at certain identified banks were conducted by

RBI due to occurrence of large value frauds and sharp increase
in number of frauds at such banks to primarily identify the policy
gaps, if any, and adequacy of controls. During the scrutinies,
systemic factors were also sought to be identified. Based on the
findings of the scrutinies, the operating framework for tracking
frauds and dealing with them were advised to be structured
along the tracks of detection and reporting of frauds, corrective
action and preventive and punitive action vide our circular dated
May 31, 2011.

3.2.6 Banks may ensure to place the copy of the circular on modus-
operandi of fraud issued by them for alerting their

11
 branches/controlling offices etc., on specific frauds before the
Audit Committee of Board (ACB) in its periodical meetings.

3.3 Frauds involving ` 100 lakh and above

In respect of frauds involving ` 100 lakh and above, in addition to the

requirements given at paragraphs 3.1 and 3.2 above, banks may report the
fraud by means of a D.O. letter addressed to the Principal Chief General
Manager, Department of Banking Supervision, RBI, Central Office, within a
week of such frauds coming to the notice of the bank’s Head Office. The
letter may contain brief particulars of the fraud such as amount involved,
nature of fraud, modus operandi in brief, name of the branch/office, names
of parties involved (if they are proprietorship/ partnership concerns or
private limited companies, the names of proprietors, partners and
directors), names of officials involved, and whether the complaint has been
lodged with the Police/CBI. A copy of the D.O. letter should also be
endorsed to the Regional Office of RBI/FCMD under whose jurisdiction the
bank's branch, where the fraud has been perpetrated, is functioning.

3.4 Cases of attempted fraud

Banks need not report cases of attempted frauds of ` 1 crore and

above to Reserve Bank of India, in terms of circular
DBS.FrMC.BC.No.04/ 23.04.001/2012-13 dated November 15, 2012.

However, the banks should continue to place the report on individual

cases of attempted fraud involving an amount of ` 1 crore and above
before the Audit Committee of its Board. The report should cover the
following viz.

 The modus operandi of the attempted fraud.

 How the attempt did not materialize into fraud or how the attempt
failed/ was foiled.
 The measures taken by the bank to strengthen the existing systems
and controls

12
 New systems and controls put in place in the area where fraud was
attempted.

Further, beginning from the year ended March 31, 2013, a

consolidated review of such cases detected during the year containing
information such area of operations where such attempts were made,
effectiveness of new processes and procedures put in place during
the year, trend of such cases during the last three years, need for
further change in processes and procedures, if any, etc as on March
31 every year may be put up to the ACB within three months of the
end of the relative year.

4. Quarterly Returns

4.1 Report on Frauds Outstanding

4.1.1 Banks should submit a soft copy of the Quarterly Report on

Frauds Outstanding in the format given in FMR – 2 to the Central
Fraud Monitoring Cell, Department of Banking Supervision at
Bengaluru and the Regional Office of the Department of Banking
Supervision/FCMD under whose jurisdiction the Head Office of
the bank falls within 15 days of the end of the quarter to which it
relates. The data should be submitted in soft copy only. Banks
which may not be having any fraud outstanding as at the end of a
quarter should submit a nil report.

4.1.2 Part - A of the report covers details of frauds outstanding as at the

end of the quarter. Parts B and C of the report give category-wise
and perpetrator-wise details of frauds reported during the quarter
respectively. The total number and amount of fraud cases
reported during the quarter as shown in Parts B and C should tally
with the totals of columns 4 and 5 in Part – A of the report

13
4.1.3 Banks should furnish a certificate, as part of the above report, to
the effect that all individual fraud cases of ` 1 lakh and above
reported to the Reserve Bank in FMR – 1 during the quarter have
also been put up to the bank’s Board and have been incorporated
in Part – A (columns 4 and 5) and Parts B and C of FMR – 2.

4.1.4 Closure of fraud cases

Banks will report to the Central Fraud Monitoring Cell, RBI,

Department of Banking Supervision (DBS), Bengaluru and the
respective Regional offices of the DBS/FCMD, the details of
fraud cases of ` 1 lakh and above closed along with reasons
for the closure after completing the process as given below..

Fraud cases closed during the quarter are required to be

reported in quarterly return FMR- 3 and cross checked with
relevant column in FMR-2 return before sending to RBI.

Banks should report only such cases as closed where the

actions as stated below are complete and prior approval is
obtained from the respective Regional Offices of DBS/FCMD.

i. The fraud cases pending with CBI/Police/Court are finally

disposed of.
ii. The examination of staff accountability has been
completed
iii. The amount of fraud has been recovered or written off.
iv. Insurance claim wherever applicable has been settled.
v. The bank has reviewed the systems and procedures,
identified as the causative factors and plugged the
lacunae and the fact of which has been certified by the

14
 appropriate authority (Board / Audit Committee of the
Board)

Banks should also pursue vigorously with CBI for final disposal of pending
fraud cases especially where the banks have completed staff side action.
Similarly, banks may vigorously follow up with the police authorities and/or
court for final disposal of fraud cases.

Banks are allowed, for limited statistical / reporting purposes, to close those
fraud cases involving amounts upto ` 25 lakh, where:

a) The investigation is on or challan/ charge sheet not

filed in the Court for more than three years from the
date of filing of First Information Report (FIR) by the
CBI/Police., or
b) The trial in the courts, after filing of charge sheet /
challan by CBI / Police, has not started, or is in
progress.
The banks are required to follow the guidelines relating to seeking prior
approval for closure of such cases from RO of DBS under whose jurisdiction
the Head Office of the bank is located/ FCMD and follow up of such cases
after closure for limited statistical purpose as enumerated in RBI circular
DBS.CO.FrMC BC.NO. 7/ 23.04.001/ 2008-09 dated June 05, 2009.

4.2 Progress Report on Frauds (FMR-3)

4.2.1 Banks should furnish case-wise quarterly progress reports

on frauds involving ` 1 lakh and above in the soft copy
format given in FMR – 3 to the Central Fraud Monitoring
Cell RBI, Department of Banking Supervision as well as
the concerned Regional Office of the Department of
Banking Supervision/FCMD under whose jurisdiction the
bank’s Head Office is situated, within 15 days of the end of
the quarter to which they relate.

15
 4.2.2 In the case of frauds where there are no developments
during a quarter, a list of such cases with a brief
description including name of branch and date of reporting
may be furnished in Part – B of FMR – 3.

4.2.3 Banks which do not have any fraud involving ` 1 lakh and
above outstanding may submit a nil report.

5. REPORTS TO THE BOARD

5.1 Reporting of Frauds

5.1.1 Banks should ensure that all frauds of ` 1 lakh and above are
reported to their Boards promptly on their detection.

5.1.2 Such reports should, among other things, take note of the failure on
the part of the concerned branch officials and controlling
authorities, and initiate appropriate action against the officials
responsible for the fraud.

5.2 Quarterly Review of Frauds

5.2.1 As advised vide circular DBS.FrMC.BC.No.5/ 23.04.001/2012-13

dated January 04, 2013 information relating to frauds for the
quarters ending June, September and December may be placed
before the Audit Committee of the Board of Directors during the
month following the quarter to which it pertains, irrespective of
whether or not these are required to be placed before the
Board/Management Committee in terms of the Calendar of
Reviews prescribed by RBI.

5.2.2 These should be accompanied by supplementary material

analysing statistical information and details of each fraud so that
the Audit Committee of the Board would have adequate material
to contribute effectively in regard to the punitive or preventive
aspects of frauds.

16
5.2.3 A separate review for the quarter ending March is not required in
view of the Annual Review for the year-ending March prescribed
at para 5.3 below.

5.2.4 Banks are required to constitute a Special Committee for

monitoring and follow up of cases of frauds involving amounts of
` 100 lakh and above exclusively, while Audit Committee of the
Board (ACB) may continue to monitor all the cases of frauds in
general. The Special Committee should consist of CMD in case
of public sector banks and MD in case of SBI/its Associates. In
case of private sector banks, two members from ACB, two
members from Board excluding RBI nominee.

5.2.5 The major functions of the Special Committee would be to monitor

and review all the frauds of ` 100 lakh and above so as to:

 Identify the systemic lacunae if any that facilitated

perpetration of the fraud and put in place measures to
plug the same.

 Identify the reasons for delay in detection, if any, reporting

to top management of the bank and RBI.

 Monitor progress of CBI/Police investigation and recovery

position.

 Ensure that staff accountability is examined at all levels in

all the cases of frauds and staff side action, if required, is
completed quickly without loss of time.

 Review the efficacy of the remedial action taken to

prevent recurrence of frauds, such as strengthening of
internal controls.

17
  Put in place other measures as may be considered
relevant to strengthen preventive measures against
frauds.

All the frauds involving an amount of ` 100 lakh and above should
be monitored and reviewed by the Special Committee of the
Board in case of all Indian commercial banks. The periodicity of
the meetings of the Special Committee may be decided according
to the number of cases involved. In addition, the Committee
should meet and review as and when a fraud involving an amount
of ` 100 lakh and above comes to light.

5.2.6 The banks may delineate in a policy document the processes for
implementation of the Committee's directions and the document
may enable a dedicated outfit of the bank to implement the
directions in this regard.

5.3 Annual Review of Frauds

5.3.1 Banks should conduct an annual review of the frauds and place a
note before the Board of Directors/Local Advisory Board for
information. The reviews for the year-ended March may be put up
to the Board before the end of the next quarter i.e. quarter ended
June 30th. Such reviews need not be sent to RBI but may be
preserved for verification by the Reserve Bank’s inspecting officers.

5.3.2 The main aspects which may be taken into account while making
such a review may include the following:

(a) Whether the systems in the bank are adequate to detect

frauds, once they have taken place, within the shortest possible
time.

(b) Whether frauds are examined from staff angle and, wherever
necessary, the cases are reported to the Vigilance Cell for
further action in the case of public sector banks.

18
 (c) Whether deterrent punishment is meted out, wherever
warranted, to the persons found responsible.

(d) Whether frauds have taken place because of laxity in following

the systems and procedures and, if so, whether effective action
has been taken to ensure that the systems and procedures are
scrupulously followed by the staff concerned.

(e) Whether frauds are reported to local Police or CBI, as the case
may be, for investigation, as per the guidelines issued in this
regard to public sector banks by Government of India.

5.3.3 The annual reviews should also, among other things, include the
following details:

(a) Total number of frauds detected during the year and the
amount involved as compared to the previous two years.

(b) Analysis of frauds according to different categories detailed in

Paragraph 2.1 and also the different business areas indicated
in the Quarterly Report on Frauds Outstanding (vide FMR – 2).

(c) Modus operandi of major frauds reported during the year

along with their present position.

(d) Detailed analysis of frauds of ` 1 lakh and above.

(e) Estimated loss to the bank during the year on account of

frauds, amount recovered and provisions made.

(f) Number of cases (with amounts) where staff are involved and
the action taken against staff.

(g) Region-wise/Zone-wise/State-wise break-up of frauds and

amount involved.

(h) Time taken to detect frauds (number of cases detected within

three months, six months and one year of their taking place).

(i) Position with regard to frauds reported to CBI/Police.

19
 (j) Number of frauds where final action has been taken by the
bank and cases disposed of.

(k) Preventive/punitive steps taken by the bank during the year to

reduce/minimise the incidence of frauds.

5.3.4 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. The detailed guidelines for private sector and
foreign banks were issued on May 26, 2011 to address all issues arising
out of lapses in the functioning of the private sector and foreign banks
especially relating to corruption, malpractices, frauds etc. for timely and
appropriate action. The detailed guidelines are aimed at bringing
uniformity and rationalization in the function of internal vigilance. Private
sector banks (including foreign banks operating in India) were advised
to put in place a system of internal vigilance machinery as per the
guidelines.

6. GUIDELINES FOR REPORTING FRAUDS TO POLICE/CBI

6.1 Private sector banks (including foreign banks operating in India)

should follow the following guidelines for reporting of frauds such as
unauthorised credit facilities extended by the bank for illegal
gratification, negligence and cash shortages, cheating, forgery, etc.
to the State Police authorities:

(a) In dealing with cases of fraud/embezzlement, banks should

not merely be actuated by the necessity of recovering
expeditiously the amount involved, but should also be

20
 motivated by public interest and the need for ensuring that
the guilty persons do not go unpunished.

(b) Therefore, as a general rule, the following cases should

invariably be referred to the State Police:

i. Cases of fraud involving an amount of ` 1 lakh and

above, committed by outsiders on their own and/or with
the connivance of bank staff/officers.

ii. Cases of fraud committed by bank employees, when it

involves bank funds exceeding ` 10,000/-.

(c) Fraud cases involving amounts of ` 100 lakh and above

should also be reported to the Director, Serious Fraud
Investigation Office (SFIO), Ministry of Company Affairs,
Government of India. Second Floor, Paryavaran Bhavan,
CGO Complex, Lodhi Road, New Delhi 110 003. Details of
the fraud are to be reported to SFIO in FMR-1 Format.

6.2 Public sector banks should report fraud cases involving amount
of ` 300 lakh and above to CBI and those below ` 300 lakh to
local police, as detailed below:

Cases to be referred to CBI

(a) Cases involving ` 300. lakh and above and upto ` 2500 lakh
 Where staff involvement is prima facie evident – CBI (Anti
Corruption Branch)
 Where staff involvement is prima facie not evident – CBI
(Economic Offences Wing)

(b) All cases involving more than ` 2500 lakh – Banking Security
and Fraud Cell of the respective centres, which is specialised

21
 cell of the Economic Offences Wing of the CBI for major bank
fraud cases.

Cases to be referred to Local Police

Cases below ` 300 lakh – Local Police.

i) Cases of financial frauds of the value of ` 1 lakh and

above, which involve outsiders and bank staff, should be
reported by the Regional Head of the bank concerned to
a senior officer of the State CID/Economic Offences Wing
of the State concerned.
ii) Cases of frauds above ` 10,000/- but below ` 1 lakh
should be reported to the local police station by the bank
branch concerned.
iii) All fraud cases of value below ` 10,000/- involving bank
officials, should be referred to the Regional Head of the
bank, who would scrutinize each case and direct the bank
branch concerned on whether it should be reported to the
local police station for further legal action.

6.3 Filing of Police complaint in case of fraudulent encashment of

DDs/TTs/Pay Orders/Cheques/ Dividend Warrants, etc.

6.3.1 In case of frauds involving forged instruments including

those cleared under CTS, the paying banker has to file the
police complaint and not the collecting banker.

6.3.2 However, in case of collection of instrument which is genuine

but the amount collected fraudulently by a person who is not
the owner, the collecting bank which is defrauded has to
file a police complaint.

22
 6.3.3 In case of collection of instruments where the amount has
been credited before realisation and subsequently the
instrument is found to be fake/forged and returned by the
paying bank, it is the collecting bank that has to file a police
complaint as they are at loss by paying the amount before
realisation of the instrument.

6.3.4 In cases of collection of altered/fake cheque involving two or

more branches of the same bank, the branch where the
altered/fake instrument has been encashed, should file a
Police complaint.
6.3.5 In the event of an altered/fake cheque having been
paid/encashed involving two or more branches of a bank
under CBS, the branch which has released the payment
against a fraudulent withdrawal, should file a Police
complaint.

7. REPORTING CASES OF THEFT, BURGLARY, DACOITY AND BANK

ROBBERIES

7.1 Banks should arrange to report by fax / e-mail instances of bank

robberies, dacoities, thefts and burglaries to the following authorities
immediately on their occurrence.

a) The General Manager, Reserve Bank of India, Central Fraud

Monitoring Cell, Department of Banking Supervision, 10/3/8,
Nruputhunga Road, P.B. No. 5467 Bengaluru – 560001.

b) Regional Office of the Department of Banking Supervision, Reserve

Bank of India under whose jurisdiction the Head Office of the
bank falls.

c) Financial Conglomerate Monitoring Division (FCMD) in respect of

12 large banks in the country under whose jurisdiction the Head
Office of the bank falls. The names of which are given in Annex.

23
 d) Regional Office of Reserve Bank of India, Department of Banking
Supervision, Reserve Bank of India, under whose jurisdiction the
affected bank branch is located to enable the Regional Office to
take up the issues regarding security arrangements in affected
branch/es during the State Level Security Meetings with the
concerned authorities (endorsements).

e) The Security Adviser, Central Security Cell, Reserve Bank of India,

Central Office Building, Mumbai – 400001.

f) Ministry of Finance, Department of Financial Services Government

of India, Jeevan Deep, Parliament Street, New Delhi.-110001.

The report should include details of modus operandi and other

information as at columns 1 to 11 of FMR – 4.

7.2 Banks should also submit to the Reserve Bank, Department of

Banking Supervision, Central Fraud Monitoring Cell at Bengaluru as
well as the concerned Regional Office of the Reserve Bank/FCMD
under whose jurisdiction the bank’s Head Office is situated a quarterly
consolidated statement in the format given in FMR – 4 (soft copy)
covering all cases pertaining to the quarter. This may be submitted
within 15 days of the end of the quarter to which it relates.

7.3 Banks which do not have any instances of theft, burglary, dacoity and
/ or robbery to report during the quarter, may submit a nil report.

24
Annex

List of banks under the supervisory purview of Financial Conglomerate

Monitoring Division (FCMD):

1. State Bank of India.

2. Bank of Baroda.
3. Bank of India.
4. Canara Bank.
5. Punjab National Bank.
6. Axis Bank.
7. HDFC Bank.
8. Kotak Mahindra Bank.
9. ICICI Bank.
10. Citi Bank.
11. HSBC.
12. Standard Chartered Bank.

25
 FMR – 1

Report on Actual or Suspected Frauds in Banks

(Vide Paragraph 3)

Part A: Fraud Report

1. Name of the bank

2. Fraud number 1

3. Details of the branch 2

(a) Name of the branch
(b) Branch type

(c) Place

(d) District

(e) State

Instructions for compiling the Fraud Report (FMR 1):

1
Fraud number: This has been introduced with a view to facilitate computerisation and cross-
reference. The number will be an alphanumeric field consisting of the following: four
alphabets (to indicate name of bank), two digits for the year (02, 03, etc.), two digits for the
quarter (01 for January – March quarter, etc.) and the final four digits being a distinctive
running number for the fraud reported during the quarter.
2
Name of the branch: In case the fraud relates to more than one branch, indicate the name of
only one branch where the amount involved has been the highest and/or which is mainly
involved in following up the fraud. The names of the other branches may be given in the brief
history/modus operandi against item number 9.

26
4. Name of the Principal
party/account 3

5.a Area of operation where the

fraud has occurred 4

5.b Whether fraud has occurred in Yes/No

a borrowal account ?

6.a Nature of fraud 5

6.b Whether computer is used in
committing the fraud?
6.c If yes, details

7. Total amount involved6(` In

lakh)

3
Name of party: A distinctive name may be given to identify the fraud. In the case of frauds in
borrowal accounts, name of the borrowers may be given. In the case of frauds committed by
employees, the name(s) of the employee(s) could be used to identify the fraud. Where fraud
has taken place, say, in clearing account/inter-branch account, and if it is not immediately
possible to identify the involvement of any particular employee in the fraud, the same may be
identified merely as “Fraud in clearing/inter-branch account”.
4
Area of operation where the fraud has occurred: Indicate the relevant area out of those
given in column 1 of statement FMR 2 (Part A) (Cash; Deposits (Savings/Current/Term); Non-
resident accounts; Advances (Cash credit/Term Loans/Bills/Others); Foreign exchange
transactions; Inter-branch accounts; Cheques/demand drafts, etc.; Clearing, etc. accounts;
Off-balance sheet (Letters of credit/Guarantee/Co-acceptance/Others); Card/Internet - Credit
Cards ; ATM/Debit Cards ; Internet Banking ; Others).
5
Nature of fraud: Select the number of the relevant category from the following which would
best describe the nature of fraud: (1) Misappropriation and criminal breach of trust,
(2) Fraudulent encashment through forged instruments/manipulation of books of account or
through fictitious accounts and conversion of property, (3) Unauthorised credit facilities
extended for reward or for illegal gratification, (4) Negligence and cash shortages,
(5) Cheating and forgery, (6) Irregularities in foreign exchange transactions, (7) Others.
6
Total amount involved: Amounts should, at all places, be indicated in Rs. lakh up to two
decimal places.

27
8.a Date of occurrence 7

b Date of detection 8

c Reasons for delay, if any, in

detecting the fraud
d Date on which reported to RBI 9

e Reasons for delay, if any, in

reporting the fraud to RBI

9.a Brief history

b modus operandi

10. Fraud committed by

a Staff Yes/No

b Customers Yes/No

c Outsiders Yes/No

11.a Whether the controlling office Yes/No

(Regional/Zonal) could detect
the fraud by a scrutiny of control
returns submitted by the branch

7
Date of occurrence: In case it is difficult to indicate the exact date of occurrence of fraud (for
instance, if pilferages have taken place over a period of time, or if the precise date of a
borrower’s specific action, subsequently deemed to be fraudulent, is not ascertainable), a
notional date may be indicated which is the earliest likely date on which the person is likely to
have committed the fraud (say, January 1, 2002, for a fraud which may have been committed
anytime during the year 2002). The specific details, such as the period over which the fraud
has occurred, may be given in the history/modus operandi.
8
Date of detection: If a precise date is not available (as in the case of a fraud detected during
the course of an inspection/audit or in the case of a fraud being reported such on the
directions of the Reserve Bank), a notional date on which the same may be said to have been
recognised as fraud may be indicated.
9
Date of reporting to RBI: The date of reporting shall uniformly be the date of sending the
detailed fraud report in form FMR 1 to the RBI and not any date of fax or DO letter th at may
have preceded it.

* Banks have to categorically mention the nature of audit the branch is subjected to viz,
concurrent audit, internal inspection, etc.

28
b Whether there is need to Yes/No
improve the information system?

12.a Whether internal inspection/ Yes/No*

audit (including concurrent
audit) was conducted at the
branch(es) during the period
between the date of first
occurrence of the fraud and its
detection?

b If yes, why the fraud could not

have been detected during
such inspection/audit.

c What action has been taken for

non-detection of the fraud
during such inspection/audit

13. Action taken/proposed to be

taken
a Complaint with Police/CBI
i)Whether any complaint has Yes/No
been lodged with the
Police/CBI?

ii)If yes, name of office/ branch

of CBI/ Police

1 Date of reference

2 Present position of the case

3 Date of completion of
Police/CBI investigation

Date of submission of
investigation report by
4
Police/CBI

29
 iii) If not reported to Police/CBI,
reasons therefor

b Recovery suit with DRT/Court

i) Date of filing

ii) Present position

c Insurance claim

i) Whether any claim has been Yes/No

lodged with an insurance
company

ii) If not, reasons therefor

d Details of staff-side action

i) Whether any internal Yes/No

investigation has been/is
proposed to be conducted

ii) If yes, date of completion

iii) Whether any departmental

enquiry has been/is proposed to
be conducted
iv) If yes, give details as per
format given below:
v) If not, reasons therefor

e Steps taken/proposed to be
taken to avoid such incidents

14. (a) Total amount recovered

i) Amount recovered from

party/parties concerned

ii) From insurance

30
 iii) From other sources

(b) Extent of loss to the bank

(c) Provision held

(d) Amount written off

15. Suggestions for consideration

of RBI

Staff – side action

No. Name Desg Whether Date of Date of Date of Date of Punish Details of
n. suspen- issue commen comple issue -ment prosecution/
ded/Dt. of -cement -tion of of final awar- conviction/
of charge of inquiry orders ded acquittal,
suspensi sheet domesti etc.
on c inquiry

* Mention the type/s of inspection / audit the branch is subjected to

31
Part B: Additional Information on Frauds in Borrowal Accounts
(This part is required to be completed in respect of frauds in all borrowal
accounts involving an amount of Rs. 5 lakh and above)
Sr. No. Type of Name of Party Address
party party/account

Borrowal accounts details:

Party Name Borrowal Nature Date of Sanctione Balance

Sr. of account of Sanction d limit outstandi
No. party/a Sr. No. Account ng
ccount

Borrowal account Director/proprietor details:

Name of Sr.No. Name of Address

party/account Director/Proprietor

Associate Concerns:

Name of Sr. No. Name of Address

party/account Associate
Associate Concern

32
 Concern

Associate Concern Director/proprietor details:

Name of Sr. No. Name of Director Address

Associate
Concern

33
 FMR – 2

Quarterly Report on Frauds Outstanding

(Vide Paragraph 4.1)

Name of the bank ______________________________________

Report for the quarter ended _____________________________ DomesticOverseas

Part – A: Frauds Outstanding

(Amount in ` lakh)

Category Cases New cases Cases closed Cases Total Provision Amount Amou
outstanding as at reported during during the outstanding as amount held for Recover nt
the end of the the current current quarter at the end of the recover cases ed Writte
previous quarter quarter quarter ed outstandi during n off
ng as at the during
the end current the
of the Qtr. curren
Qtr. t
quarte
r
No. Amount N Amount N Amount No. Amount Amoun Amount Amount Amou
o. o. (2+4- (3+5-7) t nt
6)

34
 1 2 3 4 5 6 7 8 9 10 11 12 13

Cash
Deposits
i) Savings
(i) Current
(ii) Term
Non-resident
accounts
Advances
(i) Cash
credit
(ii) Term
Loans
(iii) Bills
(iv) Others
Foreign
exchange
transactions
Inter-branch
accounts
Cheques/Demand
drafts, etc.
Clearing, etc.,
accounts

35
 Category Cases New cases Cases closed Cases Total Provision Amount Amou
outstanding as at reported during during the outstanding as amount held for Recover nt
the end of the the current current quarter at the end of the recover cases ed Writte
previous quarter quarter quarter ed outstandi during n off
ng as at the during
the end current the
of the Qtr. curren
Qtr. t
quarte
r
No. Amount N Amount N Amount No. Amount Amoun Amount Amount Amou
o. o. (2+4- (3+5-7) t nt
6)

1 2 3 4 5 6 7 8 9 10 11 12 13

Off-balance
sheet
(i) Letters of
credit
(ii) Guarantee
s
(iii) Co-
acceptanc
e
(iv) Others

36
 Category Cases New cases Cases closed Cases Total Provision Amount Amou
outstanding as at reported during during the outstanding as amount held for Recover nt
the end of the the current current quarter at the end of the recover cases ed Writte
previous quarter quarter quarter ed outstandi during n off
ng as at the during
the end current the
of the Qtr. curren
Qtr. t
quarte
r
No. Amount N Amount N Amount No. Amount Amoun Amount Amount Amou
o. o. (2+4- (3+5-7) t nt
6)

1 2 3 4 5 6 7 8 9 10 11 12 13
Card / Internet -
(i) Creit Cards
(ii) ATM/Debit
Cards
(iii) Internet
Banking
(iv) Others
Total

37
Note: For Indian banks with overseas offices/branches, the above figures relate to the domestic position. The figures in respect of
overseas branches/offices may be shown in a separate sheet in the same format as above.

38
 Part – B: Category-wise classification of frauds reported during the quarter ______________
Name of the bank ______________________________________

Misappropriati Fraudulent Unauthorise Negligence Cheating and Irregularities Others Total

on and encashment/ d credit and cash forgery in foreign
criminal manipulation of facility shortages exchange
breach of trust books of extended transactions
Category account and for illegal
conversion of gratification
property
No
No. Amt. No. Amt. No. Amt. No. Amt. Amt.
.

Less than ` 1 lakh

` 1 lakh and above

but less than ` 100
lakh

` 100 lakh and above

Total

39
 Part – C: Perpetrator-wise classification of frauds reported during the quarter___________

Name of the bank ______________________________________

Staff Customers Outsiders Staff and Staff and Customers Staff, Total
Category Customers Outsiders and Customers
Outsiders and Outsiders
No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt.

Less than ` 1 lakh

` 1 lakh and above

but less than ` 100
lakh

` 100 lakh and above

Total

Note: 1. The above category-wise classification is mostly based on various provisions of the Indian Penal Code.
2. All amounts may be furnished in ` lakh up to two decimals.

Certificate

40
Certified that all frauds of ` 1 lakh and above reported to the Reserve Bank during the last quarter have also been reported to the
bank’s Board
and have been incorporated in Part A (Columns 4 and 5) and Parts B and C above.

Signature:
Name and Designation:

Place:
Date:

41
 FMR – 3
Quarterly Progress Report on Large Value Frauds
(Vide Paragraph 4.2)

Name of the bank: ______________________________

Statement for quarter ended _______________________

Part A: Summary information

Number Amount involved

(` In lakh)
1. Cases outstanding
2. Cases where there is no
progress (furnish case-
wise details as per
format at Part B below)
3. Cases where there is
progress (furnish case-
wise details as per
format at Part C below)

Part – B: Details of cases where there is no progress

No. Name of Fraud No. Name of party/account Amount

branch
(` in lakh)

42
Part – C: Case-wise details of progress

Name of party/account: ____________________________________

Name of branch/office: ____________________________________
Amount involved
(` in lakh) ______________________________

Fraud No : ______________________________

1. Date of first reporting

2.a Date of filing recovery suit with

DRT/Court

b Present position

3. Recoveries made up to the end

of the last quarter (` in lakh)

4. Recoveries made during the

quarter (` In lakh)

a) From party/parties
concerned

b) From insurance

c) From other sources

5. Total recoveries (3+4) (` in

lakh)

6. Loss to the bank (` in lakh)

7. Provision held (` in lakh)

8. Amount written off (` in lakh)

9. a) Date of reporting case to

Police/ CBI

43
 b) Date of completion of
Police/CBI investigation

c) Date of submission of
investigation report by
Police/CBI

10. Details of staff-side action

No. Nam Desg Wheth Date Date of Date Date of Punis Details of
e n. er of comme of issue h- prosecuti
suspen issue n- compl of final ment on/convic
- of cement e-tion orders awar- tion/acqui
ded/Dt. charge of of ded ttal, etc.
of sheet domesti inquir
suspen c y
s-ion inquiry
1.
2.
3.
4.

11. Other developments

12. Whether case closed during the Yes/No

quarter
13. Date of closure:

44
 FMR – 4

Report on Dacoities/Robberies/Theft/Burglaries

(Vide Paragraph 7)

Name of the bank ______________________________________

Report for the quarter ended _____________________________

Name Addre Distric State Type of Risk Whether Type of Date and Amount Amount Insuran Arrested
of ss t branch classif a Case12 time of involved recover ce claim
10 Staff Robber
branc i- currenc occurrenc (` In ed settled
s
h cation y chest e lakh) (` In (` In
11
branch lakh) lakh)
1 2 3 4 5 6 7 8 9 10 11 12 13 14

10
Rural/Semi-urban/Urban/Metropolitan
11
High/Normal/Low
12
Dacoity/Robbery/Theft/Burglary

45
 Killed Injured Convicted Compensation paid Actio Crime No. and name Remarks
(Actual in`) n of
taken police station at
Staff Robbe Others Staff Others Staff Robbers Staff Others
which
rs
offence has been
registered
15 16 17 18 19 20 21 22 23 24 25 26

46