RBI has clearly told all the rural banks, cooperative banks and finance companies that no defaulter can be declared a defaulter unilaterally. They will be given a chance to present their explanation.
Reserve Bank of India (RBI) on Monday took a major decision regarding Fraud Risk Management. RBI has changed the guidelines related to banking to incorporate the recommendations of the Supreme Court. Under this, now the bank will have to hear the side of the borrowers before putting an account in the default category.
Let us tell you that RBI has taken this big step to make the banking system easier for the customers.
RBI said in the statement, “The original instructions now clearly require that the entities (regulated entities) under the purview of the central bank ensure compliance with the principles of natural justice in a timely manner before classifying the accounts of individuals / institutions as fraudulent, keeping in mind the decision of the Supreme Court dated March 27, 2023. “It is worth noting that in the SBI vs Rajesh Aggarwal case, a bench headed by Chief Justice DY Chandrachud advocated the right of the borrower to be heard before classifying an account as fraudulent.
Accounts will not be declared as defaulters arbitrarily
Earlier, banks used to declare loan takers as defaulters by sending some notices in the name of recovery. However, now lenders will not be able to declare accounts as defaulters arbitrarily. RBI has clearly told all rural banks, cooperative banks and finance companies that no defaulter can be declared as defaulter unilaterally and borrowers will be given a chance to present their explanation.
RBI has issued three circulars on Monday. According to which, “Under the principle of natural justice, borrowers should be given notice, given an opportunity to explain the findings of the forensic audit report and the concerned banks should be allowed to present their side before classifying their account as fraud under the master instructions.”
What will be the impact of RBI’s decision on the banking sector?
Experts say that this instruction of RBI will have a big impact on the banking sector. Due to this, banks will have to strengthen their internal audit system and they will not be able to take action on the customer arbitrarily. Due to this, the lender will keep giving all kinds of updates to the concerned authority from time to time.
Know what changes will happen?
With this decision of RBI, things will not only change for the customer but there will be many changes for the banks as well. Under this, banks will have to create a fraud risk management which will be approved by the board. The bank will now issue a show cause notice to the organizations, promoters and directors involved in the fraud and after sending the notice, they will have to give at least 21 days to respond.
Not only this, the bank will give detailed reasons for declaring an account as fraud. At the same time, banks have also been instructed to form a special team to monitor and follow this matter.
