RBI/DoS/2026-27/XX
DoS.CO.FMG.XX/23.04.001/2026-27 XXXX XX, 2026 Reserve Bank of India (Non-Banking Financial Companies – Fraud Risk Management) Directions, 2026 Introduction These Directions are issued with a view to providing a framework for prevention, early detection, and timely reporting of incidents of fraud by Applicable NBFCs to Law Enforcement Agencies (LEAs), Reserve Bank of India (‘RBI’) and National Housing Bank (in case of Housing Finance Companies), and matters connected therewith or incidental thereto. In exercise of the powers conferred under Sections 45K, 45L and 45M of the Reserve Bank of India Act, 1934 (Act 2 of 1934), and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987, and all other provisions / laws enabling RBI in this regard, RBI being satisfied that it is necessary and expedient in public interest so to do, hereby, issues these Directions hereinafter specified. Chapter I - Preliminary A. Short Title and Commencement 1. These Directions shall be called the Reserve Bank of India (Non-Banking Financial Companies - Fraud Risk Management) Directions, 2026. 2. These Directions shall come into effect immediately upon issuance. B. Applicability 3. These Directions shall be applicable to all categories of Non-Banking Financial Companies (including Housing Finance Companies) in the Upper Layer, Middle Layer and in the Base Layer (with asset size of ₹500 crore and above), hereinafter collectively referred to as 'Applicable NBFCs' and individually as an 'Applicable NBFC' for the purpose of these Directions. Note: The applicability under these Directions is in line with the regulatory structure for NBFCs as set out in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025. NBFC is as defined in Section 45 I(f) of the Reserve Bank of India Act, 1934 (Act 2 of 1934). The Asset size is as per audited balance sheet as on 31st March of the immediate preceding Financial Year. The reporting requirements prescribed under Chapter VI and Chapter VIII are not applicable to Housing Finance Companies. They shall report incidents of fraud and incidents of theft, burglary, dacoity and robbery to National Housing Bank in the manner and in Returns / Formats as prescribed by National Housing Bank. C. Definitions 4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below: (1) ‘Date of Classification’, for the purpose of reporting under FMR, is the date when due approval from the competent authority has been obtained for such classification, and the reasoned order is passed. (2) ‘Date of Detection’ to be reported in FMR, is the actual date when the fraud came to light in the concerned branch / audit / department of the Applicable NBFC, as the case may be, and not the date of approval by the competent authority of the Applicable NBFC. (3) ‘Date of Occurrence’, for the purpose of reporting under FMR, is the date when the actual misappropriation of funds has started taking place, or the event occurred, as evidenced / reported in the audit or other findings. Chapter II - Governance and Oversight A. Governance Structure for Fraud Risk Management 5. There shall be a Board approved policy on Fraud Risk Management delineating roles and responsibilities of Board / Board Committees and Senior Management of the Applicable NBFC. The policy shall inter alia contain measures towards prevention, early detection, investigation, staff accountability, monitoring, recovery, and reporting of frauds. In this context, ‘Board’ will refer to ‘Board of Directors’ of the Applicable NBFC. 6. The Policy shall also incorporate measures for ensuring compliance with principles of natural justice1 in a time-bound manner, which at a minimum, shall include: (1) Issuance of a detailed Show Cause Notice (SCN) to the Persons (including Third Party Service Providers and Professionals such as architects, valuers, chartered accountants, advocates, etc.), Entities and their Promoters / Whole-time and Executive Directors against whom allegation of fraud is being examined. The SCN shall provide complete details of transactions / actions / events basis which declaration and reporting of a fraud is being contemplated under these Directions. As non-whole-time directors (like nominee directors and independent directors) are normally not in charge of, or responsible to the company for the conduct of business of the company, the Applicable NBFC may take this into consideration before proceeding against such directors under these Directions. (2) A reasonable time of not less than 21 days shall be provided to the Persons / Entities on whom the SCN was served to respond to the said SCN. (3) The Applicable NBFC shall have a well laid out system for issuance of SCN and examination of the responses / submissions made by the Persons / Entities prior to declaring such Persons / Entities as fraudulent. (4) A reasoned Order shall be served on the Persons / Entities conveying the decision of the Applicable NBFC regarding declaration / classification of the account as fraud or otherwise. Such Order(s) must contain relevant facts / circumstances relied upon, the submission made against the SCN and the reasons for classification as fraud or otherwise. Explanation: The requirement of ensuring compliance to the principles of natural justice is applicable to all Persons / Entities and their Promoters / Whole-time and Executive Directors classified as fraud by the Applicable NBFC. In other words, this requirement is applicable in all cases of fraud classification which may have civil consequences (i.e., penal measures, caution listing) as observed in the Judgement of the Hon’ble Supreme Court dated March 27, 2023 (Civil Appeal No. 7300 of 2022 in the matter of State Bank of India & Ors. Vs. Rajesh Agarwal & Ors.) 7. The Fraud Risk Management Policy shall be reviewed by the Board at least once in three years, or more frequently, as may be prescribed by the Board. 8. Special Committee of the Board for Monitoring and Follow-up of cases of Frauds: (1) The Applicable NBFC shall constitute a Committee of the Board to be known as ‘Special Committee of the Board for Monitoring and Follow-up of cases of Frauds’ (SCBMF) with a minimum of three members of the Board, consisting of the Chief Executive Officer (Managing Director where the Chief Executive Officer is not a whole-time director) and two Independent Directors. The Committee shall be headed by one of the Independent Directors. The Applicable NBFC categorised as Middle Layer and Base Layer for regulatory purposes, shall have the option of constituting a Committee of the Executives (CoE) with a minimum of three members, at least one of whom shall be a Whole-time director or equivalent rank Official for the purpose of performing the roles and responsibilities of SCBMF as required under these Directions (2) SCBMF shall oversee the effectiveness of the Fraud Risk Management in the Applicable NBFC. SCBMF shall review and monitor cases of frauds, including root cause analysis, and suggest mitigating measures for strengthening the internal controls, risk management framework and minimising the incidence of frauds. The coverage and periodicity of such reviews shall be decided by the Board of the Applicable NBFC. The coverage may include, among others, categories / trends of frauds, industry / sectoral / geographical concentration of frauds, delay in detection / classification of frauds and delay in examination / conclusion of staff accountability, etc. (3) The threshold amount of fraud cases to be placed before the SCBMF / CoE shall be decided by the Board of the Applicable NBFC, after duly taking into account the scale and complexity of its operations. 9. The Senior Management shall be responsible for implementation of the fraud risk management policy approved by the Board of the Applicable NBFC. A periodic review of incidents of fraud shall also be placed before Board / Audit Committee of Board (ACB), as appropriate, by the Senior Management of the Applicable NBFC. 10. The Applicable NBFC shall put in place a transparent mechanism to ensure that Whistle Blower complaints on possible fraud cases / suspicious activities in account(s) are examined and concluded appropriately under its Whistle Blower Policy. 11. The Applicable NBFC shall set-up an appropriate organisational structure for institutionalisation of Fraud Risk Management within its overall risk management functions / Department. Fraud Risk Management includes prevention, early detection, investigation, staff accountability, monitoring, recovery, analysis and reporting of frauds, etc. and other related aspects under the Board approved Policy. A sufficiently senior official shall be responsible for monitoring and reporting of frauds. 12. The Applicable NBFC shall disclose the amount related to fraud reported in the company for the year in its Financial Statements – Notes to Accounts. Chapter III - Framework for Early Warning Signals for Detection of Frauds (NBFCs in the Upper Layer and Middle Layer only) A. Governance Structure 13. NBFCs in the Upper Layer and Middle Layer (NBFCs – UL and ML) shall have a framework for Early Warning Signals (EWS) under the overall Fraud Risk Management Policy approved by the Board. 14. A Board Level Committee i.e., Risk Management Committee or any other Committee having similar functions, shall oversee the effectiveness of the framework for EWS. The Senior Management shall be responsible for implementation of a robust Framework for EWS within NBFCs – UL and ML. 15. NBFCs - UL and ML shall identify appropriate early warning indicators for monitoring credit facilities / loan accounts and other financial transactions. These indicators shall be reviewed periodically for its effectiveness. Suspicion of fraudulent activity thrown up by the presence of one or more EWS indicators shall alert / trigger deeper investigation from potential fraud angle and initiating preventive measures. 16. The EWS framework shall be subject to suitable validation in accordance with the directions of the Board Level Committee so as to ensure its integrity, robustness and consistency of the outcomes. 17. The EWS Framework shall provide for, among others: (1) A system of robust EWS which is integrated with Core Banking Solution (CBS) or other operational systems; (2) Initiation of remedial action on alerts / triggers from EWS System in a timely manner; and (3) Periodic review of credit sanction and monitoring processes, internal controls and systems. 18. NBFCs – UL and ML shall put in place / suitably upgrade their existing EWS system on an ongoing basis. B. Early Warning Signal Framework for Credit Facilities / Loan Accounts 19. The EWS system shall be comprehensive and designed to include both the quantitative and qualitative indicators to make the framework robust and effective. The broad indicators which the EWS system may illustratively capture could be based on the transactional data of accounts, financial performance of borrowers, market intelligence, conduct of the borrowers, etc. 20. Generation of EWS alert(s) / trigger(s) shall necessitate examination whether the account needs to be investigated from potential fraud angle. C. EWS Framework for Other Financial / Non-Credit Related Transactions 21. NBFCs – UL and ML shall develop / strengthen their EWS system by identifying suitable indicators and parameterising them in their EWS system for monitoring other financial / non-credit related transactions. NBFCs – UL and ML shall strive to continuously upgrade the EWS system for enhancing its integrity and robustness, monitor other financial / non-credit related transactions efficiently and prevent fraudulent activities. Further, the effectiveness of EWS system shall be tested periodically. 22. The design and specification of EWS system shall be robust and resilient to ensure that integrity of system is maintained, personal and financial data of customers are secure and transaction monitoring for prevention / detection of potential fraud is on real-time basis or with a minimum time lag without compromising the effectiveness of the outcome of EWS system in prevention / detection of potential frauds. NBFCs – UL and ML shall remain vigilant in monitoring transactions / unusual activities, specifically in the non-KYC compliant and money mule accounts etc., so as to contain unauthorised / fraudulent transactions and to prevent misuse of banking / financial channel. 23. The dedicated MIS Unit or other Analytics Setup in NBFCs – UL and ML shall extensively monitor and analyse financial transactions, including transactions carried out through digital platforms / applications, in order to identify unusual patterns and activities which could alert the NBFCs – UL and ML in time for initiating appropriate measures towards prevention of fraudulent activities. Chapter IV - General Instructions A. Credit facility / Loan account / Other financial transaction – indication of fraudulent activities 24. The Applicable NBFC shall monitor activities in credit facility / loan account / other financial transactions and remain alert on activities which could potentially turn out to be fraudulent. 25. In case where there is a suspicion / indication of wrongdoing or fraudulent activity, the Applicable NBFC shall use an external audit or an internal audit as per its Board approved Policy for further investigation in such accounts. 26. The Applicable NBFC shall frame a policy on engagement of external auditors covering aspects such as due diligence, competency and track record of the auditors, among others. Further, the contractual agreement with the auditors shall, inter alia, contain suitable clauses on timeline for completion of the audit and submission of audit report to the Applicable NBFC within a specified time limit, as approved by the Board. 27. The loan agreement with the borrower shall contain clauses for conduct of such audit at the behest of lender(s). In cases where the audit report submitted remains inconclusive or is delayed due to non-cooperation by the borrower, the Applicable NBFC shall conclude on status of the account as a fraud or otherwise based on the material available on its record and its own internal investigation / assessment in such cases. The Applicable NBFC shall ensure that principles of natural justice are strictly adhered to before classifying / declaring an account as fraud (refer to Paragraph 6). 28. The Applicable NBFC (sole lending, multiple banking arrangement or consortium lending) shall ensure that the principles of natural justice (refer to Paragraph 6) are strictly adhered to before classifying / declaring an account as fraud. 29. In case an account is identified as a fraud by any Applicable NBFC, the borrowal accounts of other group companies, in which one or more promoter(s) / whole-time director(s) are common, shall also be subjected to examination by Regulated Entities (REs) concerned from fraud angle under these Directions. 30. In cases where Law Enforcement Agencies (LEAs) have suo moto initiated investigation involving a borrower account, the Applicable NBFC shall follow the process of classification of account as fraud as per its Board approved Policy and in tune with the process as given under Paragraph 6 above. B. Independent Confirmation from Third-party Service Providers including Professionals 31. The Applicable NBFC places reliance on various third-party service providers as part of pre-sanction appraisal and post-sanction monitoring. Therefore, the Applicable NBFC may incorporate necessary terms and conditions in its agreements with third-party service providers to hold them accountable in situations where wilful negligence / malpractice by them is found to be a causative factor for fraud. C. Staff Accountability 32. The Applicable NBFC shall initiate and complete the examination of staff accountability in all fraud cases in a time-bound manner in accordance with its internal policy. 33. Government-NBFCs2 shall conduct examination of staff accountability as per the guidelines issued by the Central Vigilance Commission (CVC). In terms of CVC Order, the Applicable NBFC in the public sector shall also refer all fraud cases of amount involving ₹3 crore and above for examining the role of all levels of officials / whole-time directors (including ex-officials / ex-WTDs) to the Advisory Board for Banking and Financial Frauds (ABBFF)3 constituted by the CVC. 34. In cases involving very senior executives of the Applicable NBFC (MD & CEO / Executive Director / Executives of equivalent rank), the ACB shall initiate examination of its accountability and place it before the Board. Such executives shall not participate in the meeting of the Board / ACB / SCBMF in which its accountability is to be considered. However, in case of the Applicable NBFC in the public sector, such cases shall also be referred to the ABBFF. D. Penal Measures 35. Persons / Entities classified and reported as fraud by the Applicable NBFC and also Entities and Persons associated with such Entities, shall be debarred from raising of funds and / or seeking additional credit facilities from financial entities regulated by RBI, for a period of five years from the date of full repayment of the defrauded amount / settlement amount agreed upon in case of a compromise settlement. Explanation: (1) If it is an Entity, another Entity will be deemed to be associated with it if that Entity is (i) a subsidiary company as defined under clause 2 (87) of the Companies Act, 2013 or (ii) falls within the definition of a ‘joint venture’ or an ‘associate company’ under clause (6) of Section 2 of the Companies Act, 2013. (2) In case of a Natural Person, all entities in which she / he is associated as promoter, or director, or as one in charge and responsible for the management of the affairs of the entity shall be deemed to be associated. 36. Lending to such Persons / Entities, being commercial decisions, the lending Applicable NBFC shall have the sole discretion to entertain or decline such requests for credit facilities after the expiry of the mandatory cooling period as mentioned at Paragraph 35 above. E. Treatment of Accounts under Resolution 37. In case an entity classified as fraud has subsequently undergone a resolution either under Insolvency and Bankruptcy Code, 2016 (IBC) or under the resolution framework of RBI4, resulting in a change in the management and control of the entity / business enterprise, the Applicable NBFC shall examine whether the entity shall continue to remain classified as fraud or the classification as fraud could be removed after implementation of the Resolution Plan under Insolvency and Bankruptcy Code, 2016 (IBC) or aforesaid resolution framework. This would, however, be without prejudice to the continuance of criminal action against erstwhile promoter(s) / director(s) / person(s) who were in charge and responsible for the management of the affairs of the entity / business enterprise. 38. The penal measures as detailed in Paragraphs 35 and 36 shall not be applicable to entities / business enterprises after implementation of the Resolution Plan under Insolvency and Bankruptcy Code, 2016 (IBC) or aforesaid resolution framework. 39. The penal measures detailed in Paragraphs 35 and 36 shall continue to apply to the erstwhile promoter(s) / director(s) / persons who were in charge and responsible for the management of the affairs of the entity / business enterprise. Chapter V - Reporting of Frauds to Law Enforcement Agencies 40. The Applicable NBFC shall immediately report the incidents of fraud to appropriate Law Enforcement Agencies (LEAs), viz. State Police Authorities, etc., subject to applicable laws5. 41. The Applicable NBFC shall establish suitable nodal point(s) / designate officer(s) for reporting incidents of fraud to LEAs and for proper coordination to meet the requirements of the LEAs. Chapter VI - Reporting to Reserve Bank of India A. Reporting of Incidents of Fraud 42. To ensure uniformity and consistency while reporting incidents of fraud to RBI through Fraud Monitoring Returns (FMRs) using online portal, the Applicable NBFC shall choose the most appropriate category from any one of the following: (1) Misappropriation of funds and criminal breach of trust; (2) Fraudulent encashment through forged instruments; (3) Manipulation of books of accounts or through fictitious accounts, and conversion of property; (4) Cheating by concealment of facts with the intention to deceive any person and cheating by impersonation; (5) Forgery with the intention to commit fraud by making any false documents / electronic records; (6) Wilful falsification, destruction, alteration, mutilations of any book, electronic record, paper, writing, valuable security or account with intent to defraud; (7) Fraudulent credit facilities extended for illegal gratification; (8) Cash shortages on account of frauds; (9) Fraudulent transactions involving foreign exchange; (10) Fraudulent electronic banking / digital payment related transactions committed on NBFCs; and (11) Other type of fraudulent activity not covered under any of the above. B. Modalities of Reporting Incidents of Fraud 43. The Applicable NBFC shall furnish FMR in individual fraud cases, irrespective of the amount involved, immediately but not later than 14 days from the date of classification of an incident / account as fraud. Updates to the FMR shall be provided through FMR Update Application (FUA). 44. Incidents of fraud at overseas branches of Indian NBFCs shall also be reported to the concerned overseas LEAs in accordance with the relevant laws / regulations of the host countries. 45. The Applicable NBFC shall also report frauds perpetrated in its group entities to RBI separately [the FMR shall be furnished through e-mail (fmgconbfc@rbi.org.in) only], if such entities are not regulated / supervised by any financial sector regulatory / supervisory authority. However, in case of overseas financial group entity of Indian NBFC, the parent NBFC shall also report incidents of fraud to RBI. The group entities will have to comply with the principles of natural justice before declaration of fraud (refer to Paragraph 6 above). ‘Group entities’, in this context, mean both the domestic and overseas subsidiaries, affiliates, joint ventures etc. as defined under applicable accounting standards, whether engaged in financial or non-financial services. Explanation: The Directions require reporting of frauds perpetrated only in the Group entities (subsidiaries / affiliates / joint ventures etc.) belonging to the reporting NBFCs / HFCs. In other words, the reporting requirement is not applicable to the other entities in wider Group to which the reporting NBFC / HFC belongs, which may not be subsidiaries / affiliates / joint ventures etc. of the reporting NBFCs / HFCs. 46. The Applicable NBFC shall adhere to the timeframe prescribed in these Directions for reporting of fraud cases to RBI. Delay in reporting of frauds, and the consequent delay in alerting other NBFCs could result in similar frauds being perpetrated elsewhere. The Applicable NBFC must examine and fix staff accountability for delays in identification of fraud cases and in reporting to RBI. 47. While reporting frauds, the Applicable NBFC shall ensure that persons / entities who / which are not involved / associated with the fraud are not reported in the FMR. 48. The Applicable NBFC may, under exceptional circumstances, withdraw FMR / remove name(s) of perpetrator(s) from FMR. Such withdrawal / removal shall, however, be made with due justification and with the approval of an official at least in the rank of a director. 49. In cases where withdrawal of FMR / removal of name(s) of perpetrator(s) is necessitated due to Court directions, the Applicable NBFC may arrange to withdraw FMR / remove name(s) of perpetrator(s) immediately. Such cases shall subsequently be placed before the official in the rank of WTD for information. C. Closure of Fraud Cases Reported 50. The Applicable NBFC shall close fraud cases using ‘Closure Module’ where the actions as stated below are complete: (1) The fraud cases pending with LEAs / Court are disposed off; and (2) The examination of staff accountability has been completed. 51. NBFCs are allowed, for limited statistical / reporting purposes, to close those reported fraud cases involving amount up to ₹25 lakh, where examination of staff accountability and disciplinary action, if any, have been taken and (1) The investigation is going on or charge-sheet has not been filed in the Court by LEA for more than three years from the date of registration of First Information Report (FIR); or (2) The charge-sheet is filed by the LEAs in trial court and the trial in the court has not commenced or is pending before the court for more than three years from the date of registration of FIR. 52. In all closure cases of reported frauds, the Applicable NBFC shall maintain details of such cases for examination by auditors. Chapter VII - Other Instructions A. Legal Audit of Title Documents in respect of Large Value Loan Accounts 53. The Applicable NBFC shall subject the title deeds and other related title documents in respect of all credit facilities of ₹1 crore and above to periodic legal audit and re-verification, till the loan is fully repaid. The scope and periodicity of legal audit shall be in accordance with the Board approved policy referred to in Paragraph 5 above. B. Treatment of Accounts classified as Fraud and sold to other Lenders / Asset Reconstruction Companies6 54. The Applicable NBFC shall complete the investigation from fraud angle before transferring the loan account / credit facility to other lenders / Asset Reconstruction Companies (ARCs). In cases where the Applicable NBFC concludes that a fraud has been perpetrated in the account, they shall report it to RBI before selling the accounts to other lenders / ARCs. In cases where accounts are sold to ARCs, the Applicable NBFC shall continue to report subsequent developments in such accounts to RBI, by obtaining requisite information periodically from the concerned ARCs. Housing Finance Companies shall report to National Housing Bank. C. Role of Auditors 55. During the course of the audit, auditors may come across instances where the transactions in the account or the documents point to the possibility of fraudulent transactions in the account. In such a situation, the auditor should immediately bring it to the notice of the senior management and if necessary, to the ACB of the Applicable NBFC for appropriate action. 56. Internal Audit in the Applicable NBFC shall cover controls and processes involved in prevention, detection, classification, monitoring, reporting, closure and withdrawal of fraud cases, as well as weaknesses observed in the critical processes in the fraud risk management framework of the Applicable NBFC, including delay in reporting, non-reporting, conduct of staff accountability examination, prudential provisioning, etc. Chapter VIII - Reporting Cases of Theft, Burglary, Dacoity and Robbery 57. The Applicable NBFC shall report instances of theft, burglary, dacoity and robbery (including attempted cases), to Fraud Monitoring Group (FMG), Department of Supervision, Central Office, Reserve Bank of India, immediately (not later than seven days) from their occurrence, in the prescribed format Report on Bank Robbery, Theft, etc. (RBR) through e-mail (fmgconbfc@rbi.org.in). The format is available on RBI website. 58. The Applicable NBFC shall also submit a quarterly Return (RBR) on theft, burglary, dacoity and robbery to RBI using online portal, covering all such cases during the quarter. This shall be submitted within 15 days from the end of the quarter to which it relates. Chapter IX - Repeal and Other Provisions A. Repeal and Saving 59. With the issue of these Directions, the existing directions, instructions, and guidelines relating to Fraud Risk Management as applicable to Non-Banking Financial Companies stand repealed, as communicated vide circular no. XX dated XXXX XX, 2026. The directions, instructions, and guidelines already repealed vide any of the directions, instructions, and guidelines listed in the above circular shall continue to remain repealed. 60. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: (1) any right, obligation or liability acquired, accrued, or incurred thereunder; (2) any penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; (3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed. B. Application of Other Laws not barred 61. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force. C. Interpretations 62. For giving effect to the provisions of these Directions or to remove any difficulties in the application or interpretation of the provisions of these Directions, RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by RBI shall be final and binding. (C. Saravanan)
Chief General Manager
|