Terming financial sector frauds as "lethal parasite" to the economy, Union Minister Jayant Sinha today asked banks to fast-track the process of reporting such instances to help the probe agencies crack these cases.
Sinha, Minister of State for Finance, also said that it is the public sector banks that account for a substantial chunk of the total amount involved in such cases.
"Another glaring issue in this context is the considerable delay in declaration of frauds by various banks in cases of consortium/multiple financing. We have on occasions observed more than 12-15 months lag in declaration of the same cases as fraud by different bank," Sinha said.
The Minister further said such delays "not only enables the borrower to defraud the banking system to a larger extent, but also allows him considerable time to erase the money trail and queer the pitch for the investigative agencies".
Referring to the steps taken by the government and RBI to tackle the issue of frauds in financial sector, "a lethal parasite to economy of the nation", Sinha said a concept of 'Red Flagged Account' is being introduced, which will alert the banks about a possible fraud before it is committed.
Addressing the vigilance officers of banks, Sinha said the banks would need to use the Early Warning Signals under this new concept to launch a detailed investigation into the concerned 'Red Flagged Account (RFA)'.
He said this new concept would help check a new emerging trend of large value frauds involving consortium of banks.
"These signals in a loan account should immediately put the bank on alert regarding a weakness or wrong doing which may ultimately turn out to be fraudulent," he said.
Sinha asked the CVOs to complete the internal probe even if the probe in any case has been handed over to the external agency like the CBI or the Enforcement Directorate.
"The completion of internal probe would also assist in prompt investigation by the law enforcement agencies and the perpetrators of fraud can be brought to book.
Stating that financial sector frauds mainly take place on three counts, technology, KYC and loans, Sinha also said presently there is no single database which the lenders can access to get all the important details of previous frauds reported by banks.
