Banks’ ‘internal’ accounts being used for frauds: RBI – Times of India

MUMBAI: RBI has raised concerns again over misuse of ‘internal’ accounts in some banks. The central bank’s inspections have revealed that some internal accounts – which are used by a bank for its own operations – have been used as a conduit for fraud and ‘evergreening‘ of loans, RBI deputy governor Swaminathan J said on Tuesday.
Noting that some banks have opened lakhs of internal accounts without valid reasons, RBI has asked CFOs of these banks to close unnecessary accounts.
These accounts are not meant for customer or external transactions, instead they are largely opened for operational efficiency. Internal accounts are also used to manage a bank’s liquidity, track fee income and to monitor certain activities.

In Sept 2019, RBI had told lenders to conduct an internal appraisal of such accounts which might have been used to hide bad loans through evergreening, where funds lie in an internal account for a few days before being credited to the actual beneficiary. The central bank had said that the funds in such transitory internal risk being misused by a branch manager to fund unauthorised overdrafts.
“Internal accounts are high risk in nature on account of its potential for misuse. I therefore request the CFOs to have them rationalised completely, bring them down to the essential minimum and exercise greater control through periodical reconciliation and a proper reporting to the audit committee of the board,” said Swaminathan. The deputy governor was addressing statutory auditors and CFOs of commercial banks and financial institutions.
Swaminathan said that it was the duty of CFOs to familiarise auditors and supervisors with the nuances of the bank’s operations, ” It is imperative to eschew the notion of hiding, withholding, or providing incomplete information to these teams. Transparency is key; by sharing comprehensive and accurate data, CFOs not only facilitate a smoother audit and supervision process but also reinforce the bank’s commitment to integrity and compliance,” he said.