RBI warns Banks over Misuse of Internal Bank Accounts

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The Reserve Bank of India (RBI) has expressed apprehension regarding the misuse of internal accounts in certain banks. Upon conducting inspections, it was discovered that some internal accounts, utilized by banks for their operations, were being exploited to perpetrate fraudulent activities. The central bank has issued a warning to the banks regarding this misuse.

Findings of RBI’s Investigations:

According to RBI Deputy Governor Swaminathan J, the investigations conducted by the RBI unveiled the existence of numerous internal bank accounts lacking valid justification. Some of these accounts were found to serve as conduits for fraud and the manipulation of loans. Consequently, the RBI has cautioned banks about the potential for misuse.

Actions Taken by RBI:

Subsequent to the inspections, it was revealed that certain banks had opened a large number of internal accounts without valid reasoning. In response, the RBI has taken measures to address this misuse by instructing the Chief Financial Officers (CFO) of the implicated banks to close all unnecessary internal accounts. Furthermore, the central bank has mandated the banks to maintain and manage only essential accounts, emphasizing the need for improved control over these accounts. Additionally, the respective banks are required to conduct regular checks on these accounts and provide audit reports to the committee.

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Deputy Governor’s Warning:

The Deputy Governor of the Reserve Bank of India has cautioned banks, highlighting that special attention has been directed towards the control and management of internal accounts in recent years. During investigations, it was discovered that some banks possessed an extensive number of internal accounts without a clear rationale for their existence. Such accounts were deemed risky due to the potential for misuse.

Additional Warning to Banks and NBFCs:

In addition to warning the banks, the RBI has also advised non-banking financial companies (NBFCs) to closely monitor their internal accounts. The central bank’s concerns stem from suspicions that these fictitious accounts may be utilized for various forms of digital fraud.

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