The Reserve Bank of India (RBI) issued updated guidelines titled "Master Directions on Fraud Risk Management in Non-Banking Financial Companies (NBFCs) (including Housing Finance Companies)”.
The new Master Directions apply to all NBFCs and HFCs categorized in the Upper, Middle, and Base Layers with an asset size of ₹500 crore and above. Collectively termed as "Applicable NBFCs," these entities are mandated to adhere to the provisions outlined in the Directions.
Governance Structure: Applicable NBFCs must establish a robust governance framework approved by the Board. This includes the formation of a Special Committee of the Board for Monitoring and Follow-up of fraud cases.
Early Warning Signals: Implementation of an Early Warning Signals (EWS) framework to detect potential frauds early on integrated with operational systems like Core Banking Solutions (CBS).
Reporting and Investigation: Immediate reporting of fraud incidents to law enforcement agencies (LEAs) and RBI with specific modalities for reporting through the Fraud Monitoring Returns (FMR).
Penal Measures: Introduction of stringent measures against entities involved in fraudulent activities which includes debarment from seeking additional credit facilities and financial penalties.
Audit and Accountability: Mandatory legal audits of title documents for large value loan accounts, accountability assessments of staff, and roles defined for auditors in identifying potential frauds during audits.