Friday, June 3, 2011

RBI Made Appointment Of Chief Of Internal Vigilance Mandatory

Reserve Bank of India (RBI) has been talking banking irregularities and frauds very seriously. Whether it is man made or technology driven, RBI is covering all the aspects. On the technology side, RBI has asked banks to ensure cyber security due diligence and to adopt secure systems to prevent credit card frauds.

RBI has also adopted a stringent approach towards irregularities committed by banks in India. Recently RBI imposed penalty upon 19 commercial banks for non compliance of prescribed standards. Further, RBI has also directed banks to seek information from their directors on any adverse strictures passed by financial sector regulators against them.

On the side of frauds committed by manpower, RBI has asked the foreign and private banks to institute the role of an internal vigilance officer (IVO) and laid down stringent norms to prevent frauds. These norms are based on the feedback of forensic scrutinies on banks chosen on the occurrence of high-value frauds or a sharp rise in the number of frauds in them.

In December 2010, Citibank said one of its employees had siphoned off Rs 400 crore by selling financial products that were not authorised by it. This could have been avoided if there was a cyber due diligence and vigilance system at place.

Presently, foreign and private sector banks, unlike their public sector counterparts, are not mandated to have a chief vigilance officer. RBI has said such entities should have an executive designated as chief of internal vigilance (CIV) and the appointment should be based on experience, track record, proven integrity and ability to inspire confidence among personnel in the organisation. The CIV’s functions will include preventive and punitive vigilance and surveillance and detection of malpractices.

The existing vigilance functions of a few private sector and foreign banks were mapped with the existing guidelines in the matter and it was observed that the practices vary widely among banks, RBI said.

Now private and foreign banks will have to put in place such an internal vigilance system within three months and a compliance report on this has to be given to the RBI by August 31.

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