The Reserve Bank of India (RBI) recently expressed concern over the misuse of internal accounts by banks. It has found that some banks have “lakhs” of accounts used as a conduit for fraudulent transactions and ever-greening of loan accounts.
The issue came up for discussion during RBI’s meeting on Tuesday (9 July, 2024) with statutory auditors and chief financial officers of commercial banks and financial institutions in Mumbai.
Addressing the meeting, RBI Deputy Governor Swaminathan J said, “We found certain banks having lakhs of such accounts with apparently no valid reason. Some of these accounts were also used as a conduit for certain fraudulent transactions and ever-greening of loan accounts. Internal accounts are high risk in nature on account of its potential for misuse.”
Advertisement
“I therefore request the CFOs to have them rationalised completely, bring them down to the essential minimum and exercise greater control through periodical reconciliation and a proper reporting to ACB,” he added.
Swaminathan J also urged Chief Financial Officers (CFOs) of commercial banks and All India Financial Institutions to maintain open and honest communication within their organisations and with auditors and supervisors.
“Integral to this collaboration is the need for CFOs to maintain open and honest communication channels with auditors and bank supervisors. It is imperative to eschew the notion of hiding, withholding, or providing incomplete information to these teams. Transparency is key; by sharing comprehensive and accurate data, CFOs not only facilitate a smoother audit and supervision process but also reinforce the bank’s commitment to integrity and compliance,” he said.
Further, the RBI Deputy Governor urged CFOs to invest in technology and data analytics for more precise and timely financial insights. Also, he urged auditors to maintain strict auditing practices and uphold the highest standards of objectivity, transparency, and ethics.
Also Read: RBI Governor to Banks: Act against Mule Accounts
Last week, RBI Governor Shaktikanta Das also warned bank chiefs about the problem of mule accounts (illegal accounts) and urged them to tackle digital fraud.
Swaminathan highlighted that CFOs must protect the integrity of financial reporting by preventing any misuse or clever misinterpretation of regulations or accounting standards.
He advised CFOs to pay close attention to details and maintain honest and transparent communication with the Managing Director, CEO, and the rest of the top management.
Want to learn the art and science of managing your money? The 1% Club can help. Details here
