The Reserve Bank of India-RBI issued a stern warning to banks about the prevalence of “lakhs of accounts” being used for fraudulent transactions and the evergreening of loans.
“We discovered several banks maintaining lakhs of such accounts without any legitimate reason,” stated RBI Deputy Governor Swaminathan J at a conference for statutory auditors and chief financial officers (CFOs) of commercial banks and financial institutions.
“These accounts were found to be conduits for fraudulent activities and evergreening of loans. Internal accounts are particularly risky due to their potential for misuse.”
Swaminathan urged CFOs to invest in technology and data analytics to enhance their capacity to deliver precise and real-time financial insights. “This investment not only aids strategic decision-making but also boosts the ability to swiftly address issues identified during audits or supervisory reviews,” he added.
The Deputy Governor asserted on the need for CFOs to rationalise these accounts, reduce them to an essential minimum, and maintain strict control through periodic reconciliation and proper reporting to the Audit Committee of the Board (ACB).
CFOs have a critical role in safeguarding the integrity of financial reporting, Swaminathan noted. He advised CFOs to be vigilant and maintain transparent communication with the Managing Director (MD), CEO, and other top management. Additionally, he recommended that CFOs keep open channels for escalation to the Chair of the ACB for higher-level guidance when necessary.
Swaminathan stressed the importance of honest communication with auditors and bank supervisors. “It is crucial to avoid hiding, withholding, or providing incomplete information to these teams,” he said.
“Transparency is key; sharing comprehensive and accurate data facilitates smoother audits and supervision, reinforcing the bank’s commitment to integrity and compliance. This collaboration builds trust, ensures regulatory adherence, and ultimately contributes to the institution’s financial stability and reputation.”
He also called on CFOs to conduct thorough root cause analyses of any deficiencies noted during audits or supervisory reviews. “Understanding and addressing the underlying causes of these issues ensures long-term compliance and helps prevent the recurrence of problems,” Swaminathan concluded. “This approach strengthens the overall governance and control environment of the bank.”
