RBI Circular On Vigilance

भारतीय रज़व बक
________RESERVE BANK OF INDIA_______

www.rbi.org.in
RBI/2010-11/554
DBS .CO.FrMC .BC.No.9/23.04.001/2010-11 May 26, 2011
Chairmen/Chief Executive Officers

All Private Sector Banks/Foreign Banks
Dear Sir,
Internal Vigilance in Private Sector/foreign Banks
As you are aware the Central Vigilance Commission has issued guidelines to
Public Sector Banks on the appointment of Chief Vigilance Officer in all public
sector Banks. The purpose of this is to ensure that all the internal vigilance
functions in the public sector banks are addressed through a set of
predetermined and structured procedures to ensure comprehensive treatment
and transparency.
2. RBI has also issued various circulars for the prevention of frauds and
malpractices in banks. In this connection reference is specifically drawn to
circulars DBOD. No.BC.20.17.04.001 dated August 25, 1992 on the
recommendation of the Committee to enquire into various aspects relating to
frauds and malpractices in bank; DOS.No.PP.BC.20/16.03.026/96-97 dated
November 01, 1996 conveying the recommendations of the Working group on
Internal Controls and Inspection/ Audit Systems in
banks;DBS.FrMc.No.7/23.04.001/2004-05 dated September 20, 2004 on
strengthening of Internal Vigilance machinery in banks & Financial Institutions.
3. In an endeavor to align the vigilance function in Private sector and Foreign

Banks to that of the Public Sector Banks the existing vigilance functions of a few
private sector and foreign banks were mapped with the existing guidelines in the
matter and it was observed that the practices vary widely among the banks. It
has therefore been decided to lay down detailed guidelines for private sector and
foreign banks on similar lines so that all issues arising out of lapses in the
functioning 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.
4. The detailed guidelines placed at the annex are aimed towards bringing about
uniformity and rationalisation in the function of internal vigilance. You are advised
to put in place a system of internal vigilance machinery as per the guidelines
within a period of three months from the date of this circular with the approval of
your Board. A compliance report to this effect may be submitted to RBI on or
before August 31, 2011.
5. Please acknowledge receipt.
Yours faithfully,
(A. Madasamy)
Chief General Manager
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Department of Banking Supervision, Central Office, World Trade Centre 1,Cuffe Parade, Colaba,
Mumbai - 400 005, INDIA
Tele: (9122) 2218 9131-39 Fax: 022 2218 0157 e-mail: cgmicdbsco@rbi.org.in
Annex
Guidelines on Internal Vigilance Setup in Private Sector and Foreign Banks
Preamble
Vigilance is an inseparable part of management. It promotes clean business
transactions, professionalism, productivity, promptness and transparent practices
and ensures putting in place systems and procedures to curb opportunities for
corruption which results in improving efficiency and effectiveness of the
personnel as well as the organization. These factors make it mandatory to have a
dedicated vigilance setup in the banking industry. The following guidelines aim at
structuring efficient and effective vigilance system in banks in the larger interest
of all concerned stakeholders.
1. Anti – corruption agencies in Private Sector and Foreign Banks
Introduction
Anti-corruption measures of the banks are a responsibility of the disciplinary
authority identified in the bank and it has the over-all responsibility of looking into
the acts of misconduct alleged against, or committed by, the employees within its
control and to take appropriate punitive action. It is also required to take
appropriate preventive measures so as to prevent commission of misconducts/
malpractices by the employees under its control and jurisdiction. The designated
Officer [similar to CVO in case of Public Sector Banks] acts as a Special
Assistant/Advisor to the CEO of the concerned bank in the discharge of these
functions. He also acts as a liaison officer between the bank and the Police/
SFIO/ other law enforcement authorities.
Chief of Internal Vigilance

An officer of suitable seniority is required to be designated as Chief of Internal
Vigilance (CIV) who will head the Internal Vigilance Division of the bank
concerned. Vigilance functions to be performed by the CIV would be wide
ranging and include collecting intelligence about the corrupt practices committed,
or likely to be committed, by the employees of the organisation; investigating or
causing an investigation to be made into verifiable allegations reported to him;
processing investigation reports for further consideration of the disciplinary
authority concerned; referring the matters to the CEO of the bank for advice
wherever necessary, taking steps to prevent commission of improper
practices/misconducts, etc. Thus, the CIVs’ functions can broadly be divided into
three parts, viz. (i) Preventive vigilance; (ii) Punitive vigilance; and (iii)
Surveillance and detection.
What is Vigilance Angle?

Vigilance angle is obvious in the following acts
(i) Demanding and/or accepting gratification other than legal remuneration in
respect of an official act or for using his influence with any other official.
(ii) Obtaining valuable thing, without consideration or with inadequate
consideration from a person with whom he has or is likely to have official
dealings or his subordinates have official dealings or where he can exert
influence.
(iii) Obtaining for himself or for any other person any valuable thing or pecuniary
advantage by corrupt or illegal means or by abusing his position as an employee.
(iv) Possession of assets disproportionate to his known sources of income.
(v) Cases of misappropriation, forgery or cheating or other similar criminal

offences.
In case of other irregularities like gross or willful negligence; recklessness in

decision making; blatant violations of systems and procedures; exercise of
discretion in excess, where no ostensible organizational interest is evident;
failure to keep the controlling authority/ superiors informed in time ; the
disciplinary authority with the help of the CIV should carefully study the case and
weigh the circumstances to arrive at a conclusion whether there is reasonable
ground to doubt the integrity of the officer concerned.
2. Preventive Vigilance
The CIV may take the following measures on preventive vigilance
(i) undertake a study of existing procedure and practices prevailing in his
organisation with a view to modifying those procedures or practices which
provide a scope for corruption, and also to find out the causes of delay, the
points at which it occurs and devise suitable steps to minimize delays at different
stages;
(ii) undertake a review of the regulatory functions with a view to see whether all
of them are strictly necessary and whether the manner of discharge of those
functions and exercise of powers of control are capable of improvement;
(iii) devise adequate methods of control over exercise of discretion so as to
ensure that discretionary powers are not exercised arbitrarily but in a transparent
and fair manner;
(iv) identify the areas in his organisation which are prone to corruption and to
ensure that the officers of proven integrity only are posted in those areas;
3. Appointment, Role and Functions of Chief of Internal Vigilance
Appointment of CIV in Private Sector/ Foreign Banks

The basis for appointment of CIV should be experience, track record, proven
integrity and ability to inspire confidence among personnel in the organization.
Tenure of CIV
The normal tenure of a CIV would be three years extendable up to a further
period of two years. But if a CIV has to shift from one bank to another without
completing the approved tenure in the previous bank, the principle of overall
tenure of six years will apply.
Association of CIVs with sensitive matters

The vigilance functionaries should not be a party to processing and decision-
making processes or be involved in other administrative transactions of such
nature, which are likely to have clear vigilance sensitivity. While it may not be
difficult for full-time vigilance functionaries to comply with this requirement, the
compliance of these instructions could be achieved in respect of part-time
vigilance functionaries by confining their duties, other than those connected with
vigilance work, as far as possible, to such items of work that are either free from
vigilance angle or preferably serve as input to vigilance activities such as
inspection, audit, etc.
Submission of reports and returns- Review

CIV should invariably review all pending matters, such as investigation reports,
disciplinary cases and other vigilance complaints/cases in the first week of every
month and take necessary steps for expediting action on those matters. The CIV
would arrange periodic meetings to be taken by the Chief Executive for reviewing
the vigilance work done by the organization. CIV would also be required to
furnish a report on the vigilance activities in the bank to the Board/ Local
Governing Council on a periodic basis.
3. Staff rotation and mandatory leave

The banks should identify sensitive positions and frame specific Board approved
internal policy on staff matters such as rotation of staff in general and in respect
of sensitive desks in particular. The bank may, while framing such policy, include
the minimum period for staff rotation and mandatory leave that would apply to the
staff at all levels. The minimum period of mandatory leave in each category of
staff, including the CEO, may also be indicated.
4. Complaints
Receipt of information about corruption, malpractice or misconduct on the part of

employees, from whatever source, would be termed as a complaint. Information
about corruption, malpractice or misconduct on the part of employees may flow
to the administrative authority/the Police/ SFIO/ RBI from any of the following
sources:
(a) Complaints received from employees of the organisation or from the public;
(b) Departmental inspection reports and stock verification surveys;
(c) Scrutiny of annual property statements;
(d) Scrutiny of transactions reported under the Conduct Rules;
(e) Reports of irregularities in accounts detected in the routine audit of accounts;
e.g. tampering with records, over-payments, misappropriation of money or
materials etc;
(f) Audit reports of the accounts of the bank;
(i) Complaints and allegations appearing in the press etc;
(j) Source information, if received verbally from an identifiable source, to be
reduced in writing; and
(k) Intelligence gathered by agencies like CBI, local bodies etc.
In addition, the CIV concerned may also devise and adopt appropriate methods
to collect information about any malpractice and misconduct among the
employees. Anonymous/ pseudonymous complaints received by the CIV may be
dealt with on merit.
5. Investigation agency for conducting investigations

As soon as a decision has been taken to investigate the allegations contained in
a complaint, it will be necessary to decide whether the allegations should be
inquired into departmentally or whether a police investigation is necessary.
Instructions as to with which agency the complaint is to be lodged are contained
in the Master Circular DBS. FrMC. BC. No.1/23.04.001/2010-11 on ‘Frauds –
Classification and Reporting’ dated July 1, 2010.
6. Review of cases entrusted to Police/ SFIO

No review should ordinarily be made by the administrative authority of a case
registered by the Police. If, however, there are special reasons for
discussion/review, the Police should invariably be associated with it.
7. Action against persons making false complaints

If a complaint against an employee is found to be malicious, vexatious or
unfounded, it should be considered seriously whether action should be taken
against the complainant for making such a false complaint.
8. Close liaison between the law enforcement authorities and the
administrative authorities There is a need for close liaison and co-operation
between the CIV of the bank and the police authorities/ SFIO during the course
of an inquiry and investigation and the processing of individual cases as both the
police authorities/ SFIO and the CIV, receive information about the activities of
the officer from diverse sources. Such information could be crosschecked at
appropriate intervals to keep officers of both the wings fully appraised with the
latest developments through periodical meetings between the CIV and the
Officers of the Police/ SFIO.
*******

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भारतीय रज़व बक

________RESERVE BANK OF INDIA_______

Chairmen/Chief Executive Officers

Internal Vigilance in Private Sector/foreign Banks

3. In an endeavor to align the vigilance function in Private sector and Foreign

5. Please acknowledge receipt.

Chief General Manager

1. Anti – corruption agencies in Private Sector and Foreign Banks

Chief of Internal Vigilance

What is Vigilance Angle?

(iv) Possession of assets disproportionate to his known sources of income.

(v) Cases of misappropriation, forgery or cheating or other similar criminal

In case of other irregularities like gross or willful negligence; recklessness in

3. Appointment, Role and Functions of Chief of Internal Vigilance

Appointment of CIV in Private Sector/ Foreign Banks

Association of CIVs with sensitive matters

Submission of reports and returns- Review

3. Staff rotation and mandatory leave

Receipt of information about corruption, malpractice or misconduct on the part of

5. Investigation agency for conducting investigations

6. Review of cases entrusted to Police/ SFIO

7. Action against persons making false complaints

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