What changed
RBI issued a master circular consolidating all prior fraud monitoring instructions for NBFCs (including RNBCs) as of June 30, 2008. It codifies fraud classification categories, reporting thresholds (Rs.1 lakh and above, Rs.25 lakh and above), quarterly return formats (FMR-2, FMR-3), and board review requirements. The circular also specifies penal consequences for delayed reporting.
What it means for you
NBFCs must now strictly adhere to standardized fraud reporting timelines and formats, with a designated General Manager-level official responsible for submissions. Delays could expose NBFCs to penalties under Chapter V of the RBI Act. The consolidated framework aims to speed up inter-NBFC alerts and reduce repeat frauds.
What you must do
- Designate a General Manager or equivalent as the single point of contact for all fraud-related returns.
- Implement internal systems to report frauds of Rs.1 lakh and above to RBI within the prescribed timeframe.
- Submit quarterly returns (FMR-2 and FMR-3) and progress reports on frauds outstanding.
- Ensure board-level quarterly and annual reviews of fraud cases as per circular guidelines.
- Report frauds to police in line with the circular's instructions and maintain staff accountability for delays.
Who it affects
All deposit-taking NBFCs, Residuary Non-Banking Companies (RNBCs), Senior management and compliance teams of NBFCs, Board of directors of NBFCs
What are the key fraud reporting thresholds under this master circular?
Frauds involving Rs.1 lakh and above must be reported to RBI. Frauds of Rs.25 lakh and above have separate reporting requirements. Cash shortages over Rs.10,000 (or Rs.5,000 if detected by management/auditor and not reported on occurrence by cash handlers) are treated as fraud even if intent is not proven.
What happens if an NBFC delays reporting a fraud?
Delays can lead to penal action under Chapter V of the RBI Act, 1934. NBFCs must fix staff accountability for delays to avoid similar frauds occurring elsewhere due to late alerts.
Are NBFCs required to submit nil fraud reports?
No, NBFCs are not required to submit nil reports to the Frauds Monitoring Cell or Regional Offices of Department of Non-Banking Supervision. However, they must ensure that any reports sent are duly acknowledged as received.