What changed
RBI observed that many large-value frauds, especially in housing loans, occurred despite concurrent audit coverage, often due to forged documents certified by professionals. The circular now explicitly requires concurrent auditors to verify the authenticity of all third-party certifications and title documents, and to report on internal discipline and staff rotation.
What it means for you
Banks must strengthen their concurrent audit framework to independently confirm the genuineness of borrower-submitted certificates and title deeds, especially for high-value loans. This increases operational costs and audit intensity but reduces fraud risk. Non-compliance with the 2009 circular on this matter is also flagged.
What you must do
- Update concurrent audit terms to include mandatory verification of all third-party certifications (CA, valuer, lawyer) by directly contacting the issuer.
- For land-secured loans, obtain title deed verification reports from local revenue authorities before sanction.
- Implement a system for indirect confirmation of certificates (e.g., assume genuine if no response by deadline).
- Ensure internal discipline, staff rotation, and checks-and-balances are audited and reported.
- Coordinate with IBA to report and circulate caution lists for certifiers found to have issued wrong certifications.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), All India Select Financial Institutions, Concurrent audit teams and internal audit departments, Loan sanctioning and credit risk teams, Borrowers submitting third-party certifications
What triggered this RBI circular on concurrent audit?
A study of large-value frauds, including housing loan frauds, revealed that many were perpetrated using forged documents certified by professionals like valuers, lawyers, and CAs, even when branches were under concurrent audit.
How should banks verify third-party certifications under the new rules?
Banks must independently verify authenticity by directly communicating with the issuing authority. They can also use indirect confirmation, e.g., informing the issuer that non-response by a deadline will be taken as the certificate being genuine.
What happens if a certifier is found to have issued a wrong certificate?
The Indian Banks' Association (IBA) will put in place a process to issue a 'Caution List' regarding that certifier to all banks, helping prevent future frauds.