Reserve Bank of India (Rural Co-operative Banks – Fraud Risk Management) Directions, 2026
UR
- Applies toRural co-operative banks
- StatusIn force
- IssuedJul 31, 2026
- Amendmentsnone tracked
- Length35 points in 4 sections · 4 min read
The four dates on this rule
- PublishedJul 31, 2026The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyJul 31, 2026The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNoneIt starts to apply on the day it was published.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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Chapter I. Preliminary
1. Fraud rules for RCBs
This paper sets how rural co-operative banks must handle fraud.
2. Start date
These Directions came into effect immediately upon issuance.
BankPulse example. There is no gap here between issue and effect. The Directions come into effect immediately upon issuance. A bank cannot wait for a separate start date, because there is none.
3. Who is covered
These Directions apply to every rural co-operative bank.
Chapter II. Governance and Oversight
Must know
1. Twenty-one days to reply
Anyone served a show cause notice over alleged fraud must get a reasonable time, at least 21 days, to reply.
BankPulse example. Suppose the notice is served on 1 September. The person must be given at least 21 days to reply, so the reply is due no earlier than 22 September. A notice allowing 14 days would fall short.
2. Review it every three years
The Board must look at the fraud policy at least once in three years.
Do it
3. A Board policy on fraud
The Board must approve a fraud risk policy setting out who does what.
4. What the policy covers
The policy must cover prevention, early catching, enquiry, staff responsibility, watching, recovery and reporting of frauds.
5. Give the full grounds
The show cause notice must give full details of the transactions, actions and events behind the plan to declare fraud.
6. A reasoned order, served
The bank must serve a reasoned order saying whether the account is fraud, giving facts, the person's reply and reasons.
7. Fraud committee reviews cases
The Board's special fraud committee (SCBMF) must review and watch fraud cases, find root causes and suggest stronger controls.
8. Board sets the money line
The Board sets how large a fraud case must be to go to its fraud committee or executives' committee.
9. Senior staff run the policy
Senior management must put the Board's fraud policy into practice.
10. Report cases upward
Senior management must place a regular review of frauds before the Board or its audit committee.
11. Take whistle blowers seriously
Whistle blower complaints about possible fraud must be examined and closed properly.
12. A team for fraud risk
A proper unit for fraud risk must sit inside the wider risk function.
Background
13. Bank may weigh director's role
Before acting against a company's non-whole-time directors, the bank may weigh that they do not normally run it.
Chapter III. Framework for Early Warning Signals for Detection of Frauds
1. Test the framework
In banks with deposits above the level RBI sets, the warning framework must be validated as the Board-level committee directs.
2. Both kinds of signal
In banks with deposits above the level RBI sets, the warning system must use both quantitative and qualitative indicators.
3. Test the system periodically
Banks with deposits above the level RBI sets must test from time to time that the warning system works.
4. Watch mule accounts
Banks with deposits above the level RBI sets must watch transactions closely, above all in non-KYC and money mule accounts.
Chapter IV. General Instructions
Must know
1. Executive under review sits out
The CEO or an equal-rank officer must not join Board or committee meetings weighing their part in a fraud case.
Do it
2. Put the deadline in writing
The outside auditor's contract must set a time limit, approved by the Board, to finish the audit and report.
3. Put the audit in writing
The loan agreement must have clauses letting the lender order an audit where wrongdoing or fraud is suspected.
4. Settle staff responsibility in time
Staff accountability must be examined and finished within a set time in every fraud case.
Background
5. A policy for outside auditors
A policy is needed on hiring outside auditors, covering their record and fitness.
6. Hear before you brand
Natural justice must be followed strictly before any account is called a fraud.
7. Group accounts get checked
If an account is fraud, loan accounts of group companies sharing a promoter or whole-time director must be examined too.
8. Audit committee starts the examination
Where a fraud case involves top officers, the audit committee starts reviewing their part and takes it to the Board.
9. Entities linked to a person
Where a person is classed as fraud, every firm they promote, direct or manage counts as linked to them.
10. Lending after is a choice
Once the cooling period for a person or firm classed as fraud ends, the bank alone decides whether to lend.
11. New management, bar lifts
The bar on new credit ends for a firm once a resolution plan under IBC or RBI's framework is implemented.
12. Bar stays on old promoters
After resolution, the bar on new credit still holds for the firm's old promoters, directors and those who ran it.
Chapter V. Reporting of Frauds to Law Enforcement Agencies
1. Name a police contact
A nodal officer must be named to report frauds to the law enforcement agencies.
Chapter VII. Cheque Related Frauds - Reporting to Law Enforcement Agencies and National Bank for Agriculture and Rural Development
1. Hand over the instrument
In a forged instrument case the presenting bank must hand the paper to the paying bank on demand.
Chapter VIII. Other Instructions
1. Investigate before you sell
The bank must finish its fraud probe before it passes a loan to another lender or an asset reconstruction company.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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