RBI directs Pvt, foreign banks to set up vigilance systems

MUMBAI: The Reserve Bank today asked private and foreign lenders to put in place a system of internal vigilance machinery and appoint a Chief of Internal Vigilance (CIV) by August to check frauds and malpractices.

The directive aims at bringing in such banks in line with the practices followed by state-owned banks to check frauds.

"In an endeavour to align the vigilance function in private sector and foreign banks to that of the public sector banks 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 the banks," RBI said in a notification.

"It has therefore been decided to lay down detailed guidelines for private sector and foreign banks on similar lines so that all issues arising out of lapses in the functioning of the private sector and foreign banks especially relating to corruption, malpractices, frauds etc can be addressed uniformly by the banks for timely and appropriate action," it said.

A compliance report to this effect may be submitted to RBI on or before August 31, 2011, it said.

In a separate notification, RBI asked all the banks and financial institutions to streamline procedure for detection of fraud and recovery of misappropriated fund.

The matter assumes significance in the light of Rs 460 crore fraud in Citibank's Gurgaon branch discovered last year.

The Central Vigilance Commission has issued guidelines to public sector banks on the appointment of Chief Vigilance Officer (CVO).

The purpose of having such system in place is to ensure that all the internal vigilance functions in the public sector banks are addressed through a set of pre-determined and structured procedures to ensure comprehensive treatment and transparency.

As per the guideline, the designated officer similar to CVO in case of public sector banks acts as a special assistant or advisor to the CEO of the concerned bank in the discharge of these functions.

An officer of suitable seniority is required to be designated as Chief of Internal Vigilance (CIV) who will head the Internal Vigilance Division of the bank, it said.

The normal tenure of a CIV would be 3 years extendable up to a further period of two years, it said, adding, but if the officer has to shift from one bank to another without completing the approved tenure in the previous bank, the principle of overall tenure of 6 years will apply.

Source: EconomicTimes