Reserve Bank of India (Urban Co-operative Banks – Fraud Risk Management) Directions, 2026

1. Fraud rules for UCBs

This paper sets how urban 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 urban co-operative bank.

1. Twenty-one days to reply

The notice must give the person 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.

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 notice must set out every transaction and event the fraud finding rests on.

6. A reasoned order, served

A reasoned order must be served, setting out the facts, the reply and the reasons.

7. It reviews every case

That committee must review fraud cases, find the root cause and suggest fixes.

8. Board sets the money line

The Board decides the size of fraud case that must go to that 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.

13. Weigh the outside director

A nominee or independent director is normally not in charge of the business, and that counts.

1. Test the framework

The warning framework must be validated so its results stay sound and steady.

2. Both kinds of signal

The warning system must use both numbers and judgement to be of use.

3. Test the system often

The warning system must be tested from time to time to see that it works.

4. Watch mule accounts

Accounts that fail KYC and money mule accounts must be watched closely.

1. They must leave the room

Such executives must not sit in the meeting where their own conduct is weighed.

2. Put the deadline in writing

The auditor's contract must fix a time to finish the audit and hand in the report.

3. Put the audit in writing

The loan agreement must allow such an audit once the account is red flagged.

4. Settle staff responsibility in time

Staff accountability must be examined and finished within a set time in every fraud case.

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

Where one account is a fraud, group companies sharing a promoter are examined too.

8. The audit committee judges seniors

Where very senior executives are involved, the audit committee examines their part.

9. A person pulls firms in

Every firm a named person promotes or directs is treated as tied to him.

10. Lending after is a choice

After the bar ends, whether to lend again is the lender's own commercial call.

11. New owner, bar lifts

The bar stops applying to a firm once a rescue plan under the insolvency code is in place.

12. Not for the old owner

The bar stays on the old promoters and directors who ran the firm.

1. Name a police contact

A nodal officer must be named to report frauds to the law enforcement agencies.

1. Fourteen days to report

A fraud must be reported to RBI at once, and never later than 14 days from classification.

2. Do not name the innocent

People and firms not involved in the fraud must not appear in the report.

3. Keep the closed papers

Details of every closed fraud case must be kept for the auditors to see.

4. Close only when done

A fraud case is closed only when the court or police case ends and staff responsibility is settled.

1. Hand over the instrument

In a forged instrument case the presenting bank must hand the paper to the paying bank on demand.

1. Report before you sell

Where fraud is found, it must be reported to RBI before the account is sold.

2. Investigate before you sell

A loan account must be investigated for fraud before it is sold to another lender.