RBI Issues New Directions On Fraud Risk Management For NBFCs & HFCs

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.