The Reserve Bank of India (RBI) has cautioned banks against having “lakhs of accounts” used for fraudulent transactions and evergreening of loans.

“We found certain banks having lakhs of such accounts with apparently no valid reason. Some of these accounts were also used as a conduit for certain fraudulent transactions and ever-greening of loan accounts. Internal accounts are high risk in nature on account of its potential for misuse,” RBI Deputy Governor Swaminathan J said while addressing a conference of statutory auditors and chief financial officers (CFOs) of commercial banks and financial institutions.

Swaminathan asked the CFOs of commercial banks and financial institutions to rationalise these accounts, 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.

“I would urge the CFOs to have an eye for detail and an honest and transparent communication with the MDs & CEOs and the rest of the top management. You should also keep alive the channel of escalation to the Chair of the Audit Committee of the Board (ACB), if a higher level of guidance is needed in any matter,” he said.

Swaminathan urged them to invest in technology and data analytics as this would empower them to provide more accurate and real-time financial insights. 

“This not only aids in strategic decision-making but also enhances the ability to respond swiftly to any issues identified during audits or supervisory reviews,” he said.

The CFOs must protect the integrity of the financial reporting by guarding against any misadventure or intelligent interpretation of regulations or accounting standards, the RBI deputy governor said.

The CFOs should maintain open and honest communication channels with auditors and bank supervisors.

“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. This collaboration builds trust, ensures regulatory adherence and ultimately contributes to the financial stability and reputation of the institution,” Swaminathan said.