**Summary:**
This Reserve Bank of India (RBI) circular DBR.No.BP.BC.9221/04.048/2015-16, dated April 18, 2016, addresses provisioning norms for fraud accounts for all Scheduled Commercial Banks (excluding Regional Rural Banks). It amends the existing guidelines outlined in circular DBR.No.BP.BC.83/21.04.048/2014-15 dated April 1, 2015.
The circular mandates that banks should provision for the entire amount due or liable for, including deposit accounts, immediately upon fraud detection. Banks can adjust for eligible financial collateral under Basel III Capital Regulations when calculating provisioning requirements.
To mitigate the impact on quarterly profit and loss statements, banks have the option to spread the provisioning over a period not exceeding four quarters, commencing from the quarter of fraud detection.
If provisioning extends beyond one financial year, banks must debit 'other reserves' (excluding reserves created under Section 17(2) of the Banking Regulation Act, 1949) for the unprovided amount at year-end, crediting provisions. These debits to other reserves should be reversed proportionately in subsequent quarters of the next financial year, with provisioning completed by debiting the profit and loss account.
Banks are required to disclose the number of frauds reported, the amounts involved, the provisions made during the year, and the unamortized provision debited from other reserves at year-end.
The RBI emphasizes strict adherence to existing guidelines on fraud classification and reporting.
For inquiries, contact the Department of Banking Regulation, Central Office, 12th Floor, Shahid Bhagat Singh Marg, Mumbai – 400001, via Tel No: 22661602, Fax No: 22705691, or Email ID: cgmicdbr@rbi.org.in. The circular is available on the RBI website: www.rbi.org.in.
Key Entities Referenced
Reserve Bank of India: The central bank of India, the publisher of the circular.
Scheduled Commercial Banks: The entities to whom the circular is addressed, excluding Regional Rural Banks.
Basel III Capital Regulations: International regulatory framework for banks.
Banking Regulation Act 1949: An act of the Parliament of India to regulate banking companies in India.
Mumbai, Maharashtra: Location of the Central Office of the Department of Banking Regulation.
Sudarshan Sen: Principal Chief General Manager at Reserve Bank of India.
Fraud Accounts: The subject matter of the circular, specifically provisioning norms for fraud accounts.
भारतीय �रजव र् बक�
__________________RESERVE BANK OF INDIA _________________
www.rbi.org.in
RBI/2015-16/376
DBR.No.BP.BC.92/21.04.048/2015-16 April 18, 2016
All Scheduled Commercial Banks
(Excluding Regional Rural Banks)
Dear Sir,
Provisioning pertaining to Fraud Accounts
Please refer to circular DBR.No.BP.BC.83/21.04.048/2014-15 dated April 1, 2015 on
the captioned subject. On a review, it has been decided to amend the provisioning
norms in respect of all cases of fraud, as under:
(a) Banks should normally provide for the entire amount due to the bank or for
which the bank is liable (including in case of deposit accounts), immediately
upon a fraud being detected. While computing the provisioning requirement,
banks may adjust financial collateral eligible under Basel III Capital
Regulations - Capital Charge for Credit Risk (Standardised Approach), if
any, available with them with regard to the accounts declared as fraud
account;
(b) However, to smoothen the effect of such provisioning on quarterly profit and
loss, banks have the option to make the provisions over a period, not
exceeding four quarters, commencing from the quarter in which the fraud
has been detected;
(c) Where the bank chooses to provide for the fraud over two to four quarters
and this results in the full provisioning being made in more than one
financial year, banks should debit 'other reserves' [i.e., reserves other than
the one created in terms of Section 17(2) of the Banking Regulation Act
1949] by the amount remaining un-provided at the end of the financial year
by credit to provisions. However, banks should proportionately reverse the
debits to ‘other reserves’ and complete the provisioning by debiting profit
and loss account, in the subsequent quarters of the next financial year;
ब��कंग �व�नयमन �वभाग, केन्द्र�य कायार्लय, 12वी ंमंिज़ल, शह�द भगत �सहं माग,र् मुंबई – 400001
Department of Banking Regulation, Central Office, 12th Floor, Shahid Bhagat Singh Marg, Mumbai - 400001
Tel No: 22661602 Fax No: 22705691 Email ID: cgmicdbr@rbi.org.in
�हदं � आसान ह�, इसका प्रयोग बड़ाइए2
(d) Banks shall make suitable disclosures with regard to number of frauds
reported, amount involved in such frauds, quantum of provision made
during the year and quantum of unamortised provision debited from ‘other
reserves’ as at the end of the year.
2. We reiterate that banks must scrupulously adhere to the extant guidelines on
classification and reporting of frauds.
Yours faithfully,
(Sudarshan Sen)
Principal Chief General Manager