Banks to seek change in ‘Fraud’ definition

All high-street banks will jointly move the Reserve Bank of India (RBI) to urge a change in the sweeping definition of ‘fraud’ which cripples businesses, scares away financiers and results in legal tangles.

A rigid regulation requires all banks to label a borrowing company and all its accounts as ‘fraud account (s)’ when one lender puts a fraud tag. It sets off a process where lenders have to file police complaints and take a knock- which is often disproportionately higher than the size of the fraud -on their bottom lines.

The combined action rapidly worsens the fortunes of the borrowing corporate, driving away creditors, suppliers, investors and other stakeholders. And lenders which place all the information in public domain may face legal action – as some of the court battles bear out – when angry borrowers think they were disgraced without being properly heard.

Bank CEOs decided to make a representation to RBI at a meeting held a few weeks ago to discuss certain issues faced by the lenders, two senior bank officials told.

When contacted, Sunil Mehta, chief executive of the industry body Indian Banks Association, said, “We should have a system where the entire company is not tarnished because of a small diversion of funds and its entire borrowing is declared as ‘fraud’.