Mumbai: The Reserve Bank of India (RBI) has drawn up new rules for banks aimed a t preventing fraud

and irregularities. The regulator has asked banks to immediately frame staff rotation and mandatory leave policies for employees in sensitive areas such as treasury and for relatio nship managers handling high-value clients. Staff rotations and leave are international practices that help banks keep track of decisions and businesses handled by a particular employee. In a notification on Thursday, RBI said it introduced the rules following forens ic studies at certain banks due to the occurrence of large value frauds or sharp increase in number of frauds at such banks . In another notification, RBI directed private and foreign banks to appoint chief of internal vigilance (CIV) officers, with responsibilities similar to those of chief vigilance officers in public sector banks. It was observed that the practices vary widely among banks, RBI said. It has, there fore, been decided to lay down detailed guidelines for private sector and foreig n banks on similar lines so that all issues arising out of lapses in the functio ning 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. Banks need to implement an internal vigilance system by 31 August and submit a c ompliance report. RBI s directive on staff rotation and mandatory leave comes a few months after a m ulti-crore fraud involving a relationship manager at the Gurgaon branch of Citib ank India came to light. The relationship manager, Shivraj Puri, is accused of defrauding clients of at l east Rs 400 crore after promising them astronomical returns. He is in police cus tody. To prevent frauds, banks should have prescribed procedures and criteria to analy se and assess irregularities, RBI said. Banks should be able to understand the n ature of an irregularity or fraud. For instance, whether it has taken place beca use of negligence in duty as a result of a collusion by employees, it said. Any action taken in collusion to derive undue/unjust benefit or advantage should be termed as fraud, RBI said. It has asked banks to examine the intent to defraud, irrespective of whether or n ot actual loss takes place . If an irregularity is detected, banks should immediately assess if it was a resu lt of human or system failure, RBI said. The regulator also said that in the event of a fraud, banks should immediately m ove to recover the money. This exercise is the first critical step towards corrective action in the sense t hat it would lead to expeditious filing of police complaints, blocking/freezing of accounts and salvaging funds from the blocked/frozen accounts in due course, R

BI said. It asked banks to frame a fit and proper criteria for posting employees in critica l positions such as in dealing rooms and treasury, or as relationship managers f or high-value customers and heads of specialized branches. RBI has allowed banks a free hand in appointing CIVs, but has fixed the initial tenure at a maximum of six years.