Module: | MODULE B: RISK MANAGEMENT
Q388: Scenario: A corporate borrower of ABC Bank begins exhibiting financial stress, including the frequent bouncing of high-value cheques and delays in submitting quarterly stock statements. The bank initiates a Loan Review Mechanism. Months later, a forensic audit uncovers suspected siphoning of borrowed funds by the company's promoters. Based on RBI guidelines for fraud risk management, consider the following statements regarding the correct regulatory actions:
1. The frequent bouncing of cheques serves as an Early Warning Signal (EWS) indicating potential credit weakness.
2. Upon suspecting the siphoning of funds based on the forensic audit, the bank must immediately classify the borrower as a Red Flagged Account (RFA).
3. The classification of an account as an RFA is strictly an internal mechanism and does not require reporting to the RBI's CRILC platform.
Which of the statements given above is/are correct?
2. Upon suspecting the siphoning of funds based on the forensic audit, the bank must immediately classify the borrower as a Red Flagged Account (RFA).
3. The classification of an account as an RFA is strictly an internal mechanism and does not require reporting to the RBI's CRILC platform.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: The RBI framework lists 42 Early Warning Signals (EWS), and frequent bouncing of high-value cheques or delays in submitting financial statements are classic EWS indicators of underlying credit weakness or operational stress.
Statement 2 is correct: An account must be classified as a Red Flagged Account (RFA) the moment there is a reasonable suspicion of fraudulent activity (such as siphoning or diversion of funds), usually triggered by a forensic audit or an external investigation.
Statement 3 is incorrect: RFA classification is NOT just internal.
Banks are legally mandated to report all RFA classifications and fraud declarations immediately to the RBI's Central Repository of Information on Large Credits (CRILC) to ensure systemic awareness across the banking sector.
Statement 2 is correct: An account must be classified as a Red Flagged Account (RFA) the moment there is a reasonable suspicion of fraudulent activity (such as siphoning or diversion of funds), usually triggered by a forensic audit or an external investigation.
Statement 3 is incorrect: RFA classification is NOT just internal.
Banks are legally mandated to report all RFA classifications and fraud declarations immediately to the RBI's Central Repository of Information on Large Credits (CRILC) to ensure systemic awareness across the banking sector.