In view of the wide divergence between bad loans and provisions declared by banks and those assessed by the Reserve Bank of India as well as the rising incidence of frauds in the banking system, the banking regulator has decided to constitute an Expert Committee to look into the reasons for this divergence and the steps needed to prevent frauds.

The five-member Committee, headed by YH Malegam, a former member of the Central Board of Directors of RBI, will also examine the role and effectiveness of various types of audits conducted in banks.

The other members of the Malegam Committee will be Bharat Doshi, Member, Central Board of Directors, RBI; S Raman, former Chairman and Managing Director, Canara Bank and former Whole-Time Member, SEBI; and Nandkumar Saravade, Chief Executive Officer, Reserve Bank Information Technology Pvt Ltd (ReBIT). AK Misra, Executive Director, RBI, will be the Member-Secretary.

In an August 2017 speech, RBI Governor Urjit Patel had said that during the Annual Financial Inspections of banks, it had been observed that there was a divergence between the non-performing assets and provisions declared by the banks and those assessed during the AFI process.

“This has adverse implications on timely recognition of actual risk, trustworthiness and transparency of books of accounts... To address this, disclosure requirements have been put in place: banks have to disclose... the details of such divergences where these exceed specified thresholds,” the Governor said.

According to reports quoting the Finance Ministry, banks lost ₹16,789 crore on account of frauds in FY2017.

In the wake of the SWIFT-related fraud reported recently by PNB, the RBI has reiterated its confidential instructions and mandated the banks to implement the prescribed measures for strengthening the SWIFT operating environment in banks.

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