POLICY ON FRAUD RISK MANAGEMENT & PREVENTION For NBFC / Banking Institution Version 1.0 | Industry Ready Template
1. Purpose This policy establishes the framework for identifying, preventing, detecting, investigating and reporting fraud across all business operations, digital channels, Loan Origination System (LOS), Loan Management System (LMS), treasury, collections and support functions.
2. Scope Applicable to all employees, directors, agents, vendors, BCs, DSAs, fintech partners and outsourced service providers handling customer data, lending or payment processes.
3. Objectives Protect customer assets and institutional reputation.
Prevent financial losses arising from fraud.
Ensure compliance with RBI and applicable regulations.
Establish accountability and escalation procedures.
Strengthen digital fraud monitoring using technology.
4. Fraud Governance
5. Fraud Risk Categories Identity & KYC Fraud
Application Fraud
Document Forgery
Employee/Internal Fraud
Digital & Cyber Fraud
Collection Fraud
Vendor & Procurement Fraud
Account Takeover / Payment Fraud
6. Preventive Controls
Customer Onboarding CKYC/Aadhaar/PAN verification
Liveness & face match
Duplicate customer detection
Device fingerprinting
Credit Underwriting BRE validation
Income & bureau verification
Geo-tagging
Fraud score integration
Disbursement
Maker-checker approval
Bank account validation
Name match
Cooling period for changes
Collections Receipt controls
Cashless collection preferred
GPS tagged visits
Receipt reconciliation
Information Security MFA
Role-based access
Encryption
Audit trails
7. Fraud Detection Framework Real-time monitoring shall generate alerts using predefined scenarios and AI/ML models where applicable.
Multiple applications from same device
High-risk PIN code & velocity checks
PAN/mobile duplication
Frequent bank account changes
Unusual repayment behaviour
Employee override monitoring
8. Investigation & Escalation
1. Alert generated
2. Preliminary assessment within 24 hours
3. Case registration
4. Evidence preservation
5. Customer/vendor interview
6. Root cause analysis
7. Closure with corrective actions
9. Fraud Classification
10. Reporting & Regulatory Compliance Immediate reporting of suspected fraud.
Regulatory reporting as per RBI guidelines.
Quarterly MIS to Board.
Maintain investigation records for minimum 8 years.
11. Key Risk Indicators (KRIs)
12. Whistleblower Mechanism Employees and stakeholders may confidentially report suspected fraud without retaliation. Reports shall be investigated independently.
13. Training & Awareness Mandatory annual fraud training
Quarterly phishing simulations
Vendor compliance declarations
New joiner fraud awareness program
14. Policy Review This policy shall be reviewed annually or earlier upon regulatory or business changes.
Appendix A – Fraud Incident Report Template • Incident ID: ______________________________
- Date & Time: ______________________________
- Reported By: ______________________________
- Customer Name / Loan ID: ______________________________
- Fraud Type: ______________________________
- Estimated Loss: ______________________________
- Description: ______________________________
- Evidence Attached: ______________________________
- Root Cause: ______________________________
- Corrective Action: ______________________________
- Closure Date: ______________________________
- Approving Authority: ______________________________
Role Responsibility
Board of Directors Approve policy and review fraud reports.
Risk Management Committee Monitor fraud risk and KRIs.
Chief Risk Officer Own enterprise fraud framework.
Fraud Risk Unit Detection, investigation and reporting.
Internal Audit Independent testing of controls.
Business Heads First line ownership of fraud controls.
Level Indicative Loss Escalation
Minor Up to ₹50,000 Business Head
Moderate ₹50,001–₹5 Lakh CRO & Audit
Major Above ₹5 Lakh Board & RBI as applicable
KRI Threshold Frequency
Duplicate PAN Rate >1% Daily
Application Fraud Rate >0.5% Daily
Employee Overrides >25/month Monthly
Chargeback/Failed Disbursement Defined by Risk Weekly