The Reserve Bank of India (RBI) on July 31, 2026, exercising powers under Section 21 and Section 35-A read with Section 56 of the Banking Regulation Act, 1949, issued the "Reserve Bank of India (Urban Co-operative Banks – Fraud Risk Management) Directions, 2026" with immediate effect, applicable to all Primary (Urban) Co-operative Banks (UCBs). The Directions establish a framework for prevention, early detection, investigation, and timely reporting of frauds, requiring a Board-approved Fraud Risk Management policy that incorporates principles of natural justice—including issuance of Show Cause Notices with a minimum 21-day response period and reasoned orders—before classifying any person or entity as fraudulent, drawing on the Supreme Court's Rajesh Agarwal judgment. UCBs must constitute a Special Committee of the Board for Monitoring and Follow-up of Frauds (SCBMF), or a Committee of Executives for Tier 1 & 2 UCBs.
Tier 3 & 4 UCBs must establish an Early Warning Signal (EWS) framework, overseen by a Board-level committee, integrated with Core Banking Solutions to monitor credit and non-credit transactions for potential fraud indicators. The Directions cover staff accountability examination in a time-bound manner, penal measures debarring fraudulent persons/entities from raising funds or credit for five years from regulated entities, and treatment of accounts under IBC or RBI resolution frameworks. They also prescribe fraud reporting to Law Enforcement Agencies and to RBI via Fraud Monitoring Returns (FMR) within 14 days of classification, cheque-related fraud reporting protocols, legal audits of title documents for loans of ₹1 crore and above, auditor responsibilities, and reporting of theft, burglary, dacoity, and robbery within seven days via the RBR return.
The Directions repeal all prior guidelines on Fraud Risk Management for UCBs (communicated via circular dated July 31, 2026) while preserving rights, liabilities, and proceedings arising under the repealed framework, and operate in addition to other applicable laws. RBI retains final authority to interpret and clarify any provision of these Directions.
[Notification No. RBI/DoS/2026-27/439, DoS.CO.FMG.33/23.04.001/2026-27]
