Reserve Bank of India (Small Finance Banks – Fraud Risk Management) Directions, 2026.

The RBI (Small Finance Banks – Fraud Risk Management) Directions, 2026 establish a framework for fraud prevention, early detection, investigation, reporting, and monitoring by Small Finance Banks (SFBs). SFBs must adopt a Board-approved Fraud Risk Management Policy covering EWS, Red Flagged Accounts (RFA), investigations, staff accountability, recovery, and reporting. Before classifying any person or entity as fraudulent, banks must follow principles of natural justice, including issuing a Show Cause Notice, allowing at least 21 days for response, and passing a reasoned order. The Directions require strong governance through the SCBMF, Risk Management Committee, whistle-blower mechanisms, and fraud risk management function. Banks must use analytics, CRILC, and the Central Fraud Registry (CFR) for fraud detection and report red-flagged accounts of ₹3 crore and above within 7 days. Fraud cases must be investigated and classified within 180 days, reported to Law Enforcement Agencies and RBI through FMRs within 14 days, and monitored through proper CFR updates. The Directions also cover staff accountability, IBC/resolution cases, ARC-related fraud reporting, auditor responsibilities, legal audits, and penalties, including a five-year credit facility debarment for fraud-classified persons/entities after repayment or settlement.