RBI orders tighter internal control in private, foreign banks

Worried by a recent spate of frauds in the private banking system, The Reserve Bank of India on Thursday issued a directive to tighten internal controls in private and foreign banks, bringing them more in line with the practises at public sector banks.

In two separate circulars, RBI asked foreign and private banks to institute the office of a chief of internal vigilance and put in place a system of internal vigilance machinery by the end of August to check frauds and malpractices.

The new norms are based on the feedback of forensic scrutiny on banks chosen on the basis of occurrence of high-value frauds or a sharp rise in the number of frauds in them.

"In an endeavour to align the vigilance function in private sector and foreign banks to that of the public sector banks, the existing vigilance functions of a few private sector and foreign banks were mapped with the existing guidelines in the matter and it was observed that the practices vary widely among the banks," RBI said in a notification.

"It has therefore been decided to lay down detailed guidelines for private sector and foreign banks on similar lines so that all issues arising out of lapses in the functioning of the private sector and foreign banks especially relating to corruption, malpractices, frauds etc can be addressed uniformly by the banks for timely and appropriate action," it said.

In a separate notification, RBI asked all the banks and financial institutions to streamline procedures for detection of fraud and recovery of misappropriated fund.