RBI Warns Banks Against Fraudulent Accounts and Evergreening: Key Takeaways

Internal accounts are high risk in nature on account of its potential for misuse,” RBI Deputy Governor Swaminathan J said.
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The Reserve Bank of India (RBI) has issued a stern caution to banks regarding the proliferation of “lakhs of accounts” used for fraudulent transactions and evergreening of loan accounts. This warning comes amidst concerns over misuse and risk associated with such internal accounts.

Concerns Highlighted by RBI

During a recent Conference of statutory auditors and chief financial officers (CFOs) of commercial banks and financial institutions, RBI Deputy Governor Swaminathan J highlighted several critical issues:

  1. High Risk of Internal Accounts: RBI identified numerous accounts with no apparent valid reasons, often misused for fraudulent transactions and loan evergreening. Such practices pose significant risks to financial integrity and regulatory compliance.
  2. Call for Technological Investment: Swaminathan urged CFOs to invest in advanced technology and data analytics. This investment enhances the capability to provide accurate and real-time financial insights, crucial for strategic decision-making and rapid response to audit or supervisory findings.
  3. Rationalization and Control: Emphasizing control measures, RBI urged CFOs to rationalize internal accounts rigorously. Periodical reconciliation and robust reporting to Audit Committee of the Board (ACB) were stressed to minimize risks and ensure transparency.

Ensuring Financial Integrity

Swaminathan underscored the importance of maintaining integrity in financial reporting. He urged CFOs to foster open and transparent communication with auditors, bank supervisors, and top management. This approach not only aids in regulatory adherence but also strengthens governance and control environments within banks.

Transparency and Collaboration

Transparency was highlighted as a cornerstone of effective governance. By sharing comprehensive and accurate data, CFOs facilitate smoother audit processes, enhance regulatory compliance, and bolster the institution’s reputation for integrity.

Long-Term Compliance Strategy

Addressing deficiencies through thorough root cause analysis was advised over short-term fixes. Understanding and rectifying underlying issues ensure sustained compliance and prevent recurrence of problems, thereby fortifying overall governance.


RBI’s directives underscore the imperative for banks to enhance internal controls, leverage technology for better financial insights, and foster a culture of transparency and compliance. By adhering to these principles, banks can mitigate risks, strengthen financial stability, and uphold their reputational integrity.

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