Reserve Bank of India (Non-Banking Financial Companies– Fraud Risk Management) Directions, 2026

भारतीय ǐरज़वर् बैंक Reserve Bank of India

पयर्वेक्षण ͪ वभाग, भारतीय ǐरज़वर् बैंक, केंद्रȣय कायार्लय, मेकर टावर-ई, 20वीं मंिजल, कफ परेड, कोलाबा, मुंबई-400 005 दूरभाष: 022-6989 2022 ई-मेल: fmgdosco@rbi.org.in Department of Supervision, Reserve Bank of India, Central Office, Maker Tower-E, 20th floor, Cuffe Parade, Colaba, Mumbai- 400 005 Tel: 022-6989 2022 Email: fmgdosco@rbi.org.in

ᳲहंदी आसान है, इसका ᮧयोग बढ़ाइए RBI/DoS/2026-27/463 DoS.CO.FMG.57/23.04.001/2026-27 July 31, 2026 Reserve Bank of India (Non-Banking Financial Companies– Fraud Risk Management) Directions, 2026

Table of Contents

Chapter I - Preliminary ............................................................................................. 4 A. Short Title and Commencement ..................................................................... 4 B. Applicability ..................................................................................................... 4 C. Definitions ........................................................................................................ 4 Chapter II - Governance and Oversight .................................................................. 6 A. Governance Structure for Fraud Risk Management ..................................... 6 Chapter III - Framework for Early Warning Signals for Detection of Frauds (NBFCs in the Upper Layer and Middle Layer only) ............................................ 10 A. Governance Structure ................................................................................... 10 B. Early Warning Signal Framework for Credit Facilities / Loan Accounts ... 11 C. EWS Framework for Other Financial / Non-Credit Related Transactions . 11 Chapter IV - General Instructions ......................................................................... 12 A. Credit facility / Loan account / Other financial transaction – indication of fraudulent activities ....................................................................................... 12 B. Independent Confirmation from Third-party Service Providers including Professionals ................................................................................................. 13 C. Staff Accountability ....................................................................................... 13 D. Penal Measures .............................................................................................. 14 E. Treatment of Accounts under Resolution ................................................... 14 Chapter V - Reporting of Frauds to Law Enforcement Agencies ....................... 16 Chapter VI - Reporting to Reserve Bank of India................................................. 17 A. Reporting of Incidents of Fraud ................................................................... 17 B. Modalities of Reporting Incidents of Fraud ................................................. 17 C. Closure of Fraud Cases Reported ................................................................ 19 Chapter VII - Other Instructions ............................................................................ 20 A. Legal Audit of Title Documents in respect of Large Value Loan Accounts ........................................................................................................ 20 B. Treatment of Accounts classified as Fraud and sold to other Lenders / Asset Reconstruction Companies ............................................................... 20 C. Role of Auditors ............................................................................................. 20 Chapter VIII - Reporting Cases of Theft, Burglary, Dacoity and Robbery ......... 22 Chapter IX - Repeal and Other Provisions ........................................................... 23 A. Repeal and Saving ......................................................................................... 23 B. Application of Other Laws not barred .......................................................... 23 C. Interpretations ................................................................................................ 24

Introduction

These Directions are issued with a view to providing a framework for prevention, early detection, and timely reporting of incidents of fraud by Applicable NBFCs to Law Enforcement Agencies (LEAs), Reserve Bank of India (‘RBI’) and National Housing Bank (in case of Housing Finance Companies), and matters connected therewith or incidental thereto.

In exercise of the powers conferred under Sections 45K, 45L and 45M of the Reserve Bank of India Act, 1934 (Act 2 of 1934), and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987, and all other provisions / laws enabling RBI in this regard, RBI being satisfied that it is necessary and expedient in public interest so to do, hereby, issues these Directions hereinafter specified.

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Non-Banking Financial Companies - Fraud Risk Management) Directions, 2026.
2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to all categories of Non-Banking Financial Companies registered under the RBI Act / Factoring Regulation Act and HFCs registered under the NHB Act, wherever applicable, in the Upper Layer, Middle Layer and in the Base Layer (with asset size of ₹500 crore and above), hereinafter collectively referred to as 'Applicable NBFCs' and individually as an 'Applicable NBFC' for the purpose of these Directions.

Note: The applicability under these Directions is in line with the regulatory structure for NBFCs as set out in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025. NBFC is as defined in Section 45 I(f) of the Reserve Bank of India Act, 1934 (Act 2 of 1934). The Asset size is as per audited balance sheet as on 31st March of the immediate preceding Financial Year. The reporting requirements prescribed under Chapter VI and Chapter VIII are not applicable to Housing Finance Companies. They shall report incidents of fraud and incidents of theft, burglary, dacoity and robbery to National Housing Bank in the manner and in Returns / Formats as prescribed by National Housing Bank.

C. Definitions

4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below: (1) ‘Date of Classification’, for the purpose of reporting under FMR, is the date when due approval from the competent authority has been obtained for such classification, and the reasoned order is passed. (2) ‘Date of Detection’ to be reported in FMR, is the actual date when the fraud came to light in the concerned branch / audit / department of the Applicable NBFC, as the case may be, and not the date of approval by the competent authority of the Applicable NBFC. (3) ‘Date of Occurrence’, for the purpose of reporting under FMR, is the date when the actual misappropriation of funds has started taking place, or the event occurred, as evidenced / reported in the audit or other findings.

Chapter II - Governance and Oversight

A. Governance Structure for Fraud Risk Management

5. The Applicable NBFC shall put in place a Board approved policy on Fraud Risk Management delineating roles and responsibilities of Board / Board Committees and Senior Management of the Applicable NBFC. The policy shall inter alia contain measures towards prevention, early detection, investigation, staff accountability, monitoring, recovery, and reporting of frauds. In this context, ‘Board’ will refer to ‘Board of Directors’ of the Applicable NBFC.

6. The Policy shall also incorporate measures for ensuring compliance with principles of natural justice¹ in a time-bound manner, which at a minimum, shall include: (1) Issuance of a detailed Show Cause Notice (SCN) to the Persons (including Third Party Service Providers and Professionals, inter-alia, architects, valuers, chartered accountants, and advocates and other professional / service providers), Entities and their Promoters / Whole-time and Executive Directors against whom allegation of fraud is being examined. The SCN shall provide complete details of transactions / actions / events basis which declaration and reporting of a fraud is being contemplated under these Directions. As non-whole-time directors (like nominee directors and independent directors) are normally not in charge of, or responsible to the company for the conduct of business of the company, the Applicable NBFC may take this into consideration before proceeding against such directors under these Directions. (2) The Applicable NBFC shall provide a reasonable time of not less than 21 days to the Persons / Entities on whom the SCN was served to respond to the said SCN. (3) The Applicable NBFC shall have a well laid out system for issuance of SCN and examination of the responses / submissions made by the Persons / Entities prior to declaring such Persons / Entities as fraudulent. (4) The Applicable NBFC shall serve a reasoned Order on the Persons / Entities conveying its decision regarding declaration / classification of the account as fraud or otherwise. Such Order(s) must contain relevant facts / circumstances relied upon, the submission made against the SCN and the reasons for classification as fraud or otherwise.

Explanation: The requirement of ensuring compliance to the principles of natural justice is applicable to all Persons / Entities and their Promoters / Whole-time and Executive Directors classified as fraud by the Applicable NBFC. In other words, this requirement is applicable in all cases of fraud classification which may have civil consequences (i.e., penal measures, caution listing) as observed in the Judgement of the Hon’ble Supreme Court dated March 27, 2023 (Civil Appeal No. 7300 of 2022 in the matter of State Bank of India & Ors. Vs. Rajesh Agarwal & Ors.)