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20. Clause 8.3 deals with Early Warning Signals 16 and Red Flagged Accounts. 17 Under Clause 8.3.1, a RFA is one where a suspicion of fraudulent activity is thrown up by the presence of one or more EWS. EWS which should alert bank officials about wrongdoings in a loan account are set out in Annexure II. Some of those enumerated are set out below:

16 “EWS” 17 “RFA”  i. a. Default in undisputed payment to statutory bodies as declared in the annual report;

22. Clause 8.8 deals with situations where a bank is the sole lender. In such situations, the FMG is entrusted with the responsibility to take a call on whether a bank account in which EWS are observed should be classified 18 “FMG”  as RFA. The bank is permitted to use external auditors before taking a final call on RFA status. However, within six months the bank is required to either lift the RFA status or classify the account as fraud in accordance with the investigation or forensic audits.

23. Clause 8.9 deals with lending under consortium or multiple banking arrangements19. Clause 8.9.2 provides that all banks which have financed a borrower under an MBA should take coordinated action based on a commonly agreed strategy for subsequent legal actions, follow-ups, exchange of details and information on a consistent basis. Clauses 8.9.4 and 8.9.5 provide the procedure for classification of a borrower’s account as fraud:

“8.9.4 The initial decision to classify any standard account or NPA account as RFA or Fraud will be at the individual level and it would be the responsibility of this bank to report the RFA or Fraud status of the account on the CRILC platform so that other banks are alerted. In case it is decided at the individual bank level to classify the account as fraud straightaway at this stage itself, the bank shall then report the fraud to RBI within 21 days of detection and also report the case to CBI/Police, as it is being done hitherto. Further, within 15 days of RFA/Fraud classification, the bank which has red flagged the account or detected the fraud would ask the consortium leader or the largest lender under MBA to convene a meeting of the JLF to discuss the issue. The meeting of the JLF so requisitioned must be convened within 15 days of such a request being received. In case there is a broad agreement, the account should be classified as fraud; else based on the majority rule of agreement amongst bank with at least 60% share in the total lending, the account should be red flagged by all the banks and subjected to a forensic audit commissioned or initiated by the consortium leader or the largest lender under MBA. All banks, as part of the consortium of multiple-banking arrangement, shall share the costs and provide the necessary support for such an investigation.

24. Clause 8.9.4 stipulates that the initial decision to classify an account as RFA or fraud vests with the individual bank. Once the bank classifies the account as fraud, it is the responsibility of that bank to report the RFA or fraud status on the account on the Central Repository of Information on Large Credits 20 platform to alert other banks. In case the individual bank decides to straightaway classify the account as fraud, it is obligated to report the fraud to RBI within 21 days of detection and also report the case to CBI/Police. Further, within 15 days the individual bank could ask the consortium leader or the largest lender under the MBA to convene a meeting of the JLF to discuss the issue. The meeting of the JLF has to be convened within 15 days of the request being received. The JLF can classify an account as fraud in case there is a broad consensus. 20 “CRILC”  Otherwise, the clause indicates that based on an agreement amongst banks with at least a 60 percent share in total lending, the account should be red-flagged by all banks and subjected to forensic audit commissioned or initiated by the consortium leader or the largest lender under MBA.