RBI advice banks to take organized action against unscrupulous borrowers to curtail fraud

In spite of introduction of new technology in sharing of information, launching of credit information bureaus and fine tuning of regulations, dishonest borrowers are still taking banks for a ride. The Reserve Bank of India (RBI) on Wednesday instructed lenders to take organized action against dishonest borrowers who have still managed to take loan even after defrauding banks.

In a circular issued to the banks RBI stated, “It has come to our notice that certain unscrupulous borrowers enjoying credit facilities under ‘multiple banking arrangement’ have, after defrauding one of the financing banks, continued to enjoy the facilities with other financing banks and in some cases availed even higher limits at those banks”.

In some of the cases the borrowers used the accounts maintained at other financing banks to draw off funds deceitfully diverted from the bank on which the fraud was carried out. The RBI said, “This could be possible due to lack of a formal arrangement for exchange of information among various lending banks”.

In certain fraud cases, at a later stage it was discovered that the borrowers provided the same securities to different banks. The defrauding is continuing in spite of the advice given to the banks last year by the RBI’s Department of Banking Operations and Development to reinforce the sharing of information about the status of borrowers.

The DBOD circular had advised a system of obtaining declaration from borrowers, there should be exchange of information among banks on regular intervals and obtaining regular certification by a professional regarding compliance of various statutory prescriptions. In cases where banks have financed a borrower under multiple banking arrangements should exchange information on multilateral basis regarding incidents of fraud, legal actions taken and secret activities or operations of the borrower after the fraud.