The Reserve Bank of India has asked the banks to have more a more integrated and dextral arrangement for multiple banking as a step towards prevention of the banking frauds.

The regulator noticed that all participating banks in a multiple banking arrangement must share the details with all other banks to enable earliest detection of delinquencies.

The regulator has asked the banks to lend a borrower, under this integrated arrangement. This would enable the lending banks to obtain necessary information about the customer like details of modus operandi before making any advances.

It will help the banks to take coordinated action(s) against any case of detected frauds, enable easier follow-ups for recovery, and reduce changes of loan defaults.

Under ‘multiple banking arrangement', a borrower continues enjoying credit facilities with other lending banks even after defrauding with one of the banks. The regulator reasoned that this is due to lack of a proper integrated frame for exchange of information amongst various banks.

The bank that detects the occurrence of fraud first or one that has maximum exposure must drive the move.

RBI has even asked the banks to share information about the associated parties involved in the fraud.

Thus, if a person acquires home loan by pledging property with more than one bank, the lender must circulate the information related to borrower to other banks, lawyer, property-value, and other stakeholders.

Multiple Banking is an arrangement that enables a borrower to avail borrowals from more than one bank independently. The banks are also free to conduct their own credit assessment independently from the other lending bankers.

Though RBI has allowed multiple banking, there are no specific guidelines for it.

In October 1996, the regulatory withdrew the several regulations concerning consortium / multiple banking / syndicate banking arrangements to bring flexibility in the credit delivery mechanism and enable smooth flow of credit.

But the Central Vigilance Commission, Government of India, has reported rising number of frauds with regards to consortium/multiple banking arrangements due to the lack of information sharing amongst the lending banks.

According to a report released by Credit Information Bureau, lending banks have filed nearly 4,600 suits against borrowing companies. The parties in total owe Rs 31,562 crore to the lending banks.