RBI/2004.15
DBS.FGV(F)
No.1004/23.04.01A/2003-04
January 14, 2004
The
Chief Executives
All Indian Commercial banks
Dear
Sir,
Monitoring of large value frauds by the Board
of Directors
Please refer to our circular DOS No
BC 14/ Admn.919/16.13.100/95 dated September 26, 1995 containing revised instructions
on the constitution and functions of the Audit Committee of Board (ACB).The ACB
is required to oversee the internal inspection, statutory audit, inter-branch/inter-bank
accounts, balancing of books, major areas of house-keeping, etc. The Committee
is also required to focus attention on preventive aspects as well as follow up
action on frauds.
2. As delay in various aspects of frauds
like detection, reporting to regulatory and enforcement agencies and action against
the perpetrators of the frauds has been causing concern, the Chief Vigilance Commissioner
has emphasized the need for paying focused attention on monitoring of frauds at
the highest level and suggested constituting a sub-committee of the Board which
would be exclusively dedicated to the monitoring of fraud cases. The Director,
Central Bureau of Investigation (CBI) has also emphasized the need to assign a
well defined role to the Board of the banks in monitoring of fraud cases. It has,
therefore, been decided that the Boards of banks should constitute a Special Committee
for monitoring and following up cases of frauds involving amounts of Rs 1 crore
and above exclusively, while ACB may continue to monitor all the cases of frauds
in general.
3. The broad guidelines regarding constitution
and functions of the Special Committee of the Board are given in the following
paragraphs:
a) Constitution of the Special Committee
The Special Committee may be constituted with
five members of the Board of Directors who will include,
- Chairman
and Managing Director in case of Public Sector Banks/Managing Director in case
of State Bank of India(SBI)/associate banks of SBI; and private sector banks,
- Two members from ACB, and
- Two
other members from the Board excluding RBI nominee.
b)
Functions of Special Committee
The major functions
of the Special Committee would be to monitor and review all the frauds of Rs 1
crore and above so as to;
- Identify the systemic
lacunae if any that facilitated perpetration of the fraud and put in place measures
to plug the same;
- Identify the reasons for delay
in detection ,if any, reporting to top management of the bank and RBI;
- Monitor
progress of CBI / Police Investigation, and recovery position and;
- Ensure
that staff accountability is examined at all levels in all the cases of frauds
and staff side action, if required, is completed quickly without loss of time.
- Review
the efficacy of the remedial action taken to prevent recurrence of frauds, such
as strengthening of internal controls.
- Put in
place other measures as may be considered relevant to strengthen preventive measures
against frauds.
c)
Meetings
The periodicity of the meetings of the
Special Committee may be decided according to the number of cases involved. However
,the Committee should meet and review as and when a fraud involving an amount
of Rs.1 crore and above comes to light.
d) Review
of the functioning of the Special Committee
The
functioning of the Special Committee of the Board may be reviewed on a half yearly
basis and the reviews may be put up to the Board of Directors.
The
above instructions may please be implemented with immediate effect. Action taken
in this regard may be intimated to us.