What changed
RBI issued a revised Master Circular (DNBS.PD.CC. No.283/03.10.042/2012-13) updating all existing fraud monitoring instructions for NBFCs as of June 30, 2012. It consolidates classification, reporting thresholds, quarterly return formats (FMR-2, FMR-3), and board review requirements. The circular also mandates fraud disclosure in balance sheets for covered NBFCs.
What it means for you
NBFCs must tighten internal fraud detection and reporting processes to avoid penalties. The circular emphasizes zero tolerance for reporting delays, as they enable frauds to spread across the system. Banks lending to or investing in NBFCs should note that these norms improve transparency and early warning signals.
What you must do
- Nominate a General Manager-level official as single point of contact for all fraud returns to RBI.
- Ensure frauds involving ₹1 lakh and above are reported to RBI without delay; fix staff accountability for delays.
- Submit quarterly returns (FMR-2 and FMR-3) on frauds outstanding and progress to RBI's Frauds Monitoring Cell.
- Disclose fraud amounts in balance sheets for deposit-taking NBFCs and NBFCs-ND-SI with asset size ≥₹100 crore.
- Conduct quarterly and annual board reviews of fraud cases as prescribed.
Who it affects
All deposit-taking NBFCs (including RNBCs), NBFCs-ND-SI (non-deposit taking, systemically important, asset size ≥₹100 crore), RBI's Department of Non-Banking Supervision (DNBS)
What is the threshold for reporting frauds to RBI under this circular?
Frauds involving ₹1 lakh and above must be reported. Frauds of ₹25 lakh and above are reported to the Central Office. Cases of attempted frauds also need to be reported.
Are NBFCs required to submit nil fraud reports?
No, NBFCs are not required to submit nil reports to RBI's Frauds Monitoring Cell or Regional Offices. However, they must ensure that any reported cases are duly acknowledged.
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 prevent similar frauds elsewhere.