The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Rural Co-operative Banks – Fraud Risk Management) Directions, 2026, with immediate effect, establishing a comprehensive framework for the prevention, early detection, investigation, reporting, monitoring, and recovery of frauds in Rural Co-operative Banks (RCBs). The Directions apply to State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs) and prescribe governance measures for fraud risk management and reporting to Law Enforcement Agencies (LEAs) and NABARD.
The Directions require every RCB to adopt a Board-approved Fraud Risk Management Policy defining the roles and responsibilities of the Board and senior management. The policy must include measures for fraud prevention, investigation, staff accountability, recovery, and reporting, while ensuring compliance with the principles of natural justice, including issuance of detailed show cause notices, providing a minimum 21-day response period, examination of representations, and passing reasoned orders before classifying persons or entities as fraudulent. The Board must review the policy at least once every three years.
Additionally, the Directions mandate the constitution of a Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds (SCBMF) or, for smaller RCBs, a Committee of Executives (CoE) to oversee fraud monitoring and follow-up. They also provide a framework for early warning signals, fraud reporting, cheque-related frauds, legal audit of large-value loan accounts, and the role of auditors, thereby strengthening the overall fraud risk management framework for Rural Co-operative Banks.
[Notification No. RBI/DoS/2026-27/451]
