Vigilance Manual (Updated 2021) — Vigilance in Public Sector Banks and Insurance Companies

Why This Starts at the Board, Not the Branch

The Manual is deliberate about where it places the primary responsibility for fraud: at the Board level, not with the vigilance department alone. A bank's Board is expected to proactively understand the fraud risks the institution faces, put in place a genuinely robust anti-fraud machinery, understand the institution's own strengths and weaknesses in enough depth to assess whether internal controls can withstand emerging threats, and make sure employees have a real, usable escalation path to raise fraud concerns with Top Management rather than a channel that exists on paper only. This framing matters practically: a bank that treats fraud purely as a matter for its vigilance cell to handle after the fact has already misread what the Manual expects of it.

The Table Every Bank Vigilance Officer Has Memorised

This is the single most-quoted table in bank vigilance work, revised via a DFS letter dated 06.11.2019 and an RBI Circular dated 03.07.2017:

All bank fraud cases, including large-value frauds, are additionally registered with the Head of Zone, BS&F Zone, CBI Delhi, who functions as the Nodal Officer for this purpose (replacing the earlier routing through the Joint Director) — per the DFS letter dated 06.11.2019.

A worked example fixes this table in memory better than the numbers alone. Suppose a branch discovers a ₹4 crore loan fraud where the borrower forged collateral documents, and the branch manager appears to have been complicit. Because the amount falls between ₹3 crore and ₹25 crore, and staff involvement looks evident on the facts, this goes to CBI's Anti-Corruption Branch, not the Economic Offences Wing — the staff-involvement test, not just the rupee figure, decides which CBI wing picks it up. If the same ₹4 crore fraud instead involved only external parties with no evidence of bank staff complicity, the case would route to the Economic Offences Wing instead, even though the amount is identical.

Catching Fraud Before the Loss, Not After

The Department of Financial Services' letter dated 13.05.2015 laid down a “Framework for timely detection, reporting, investigation, etc. relating to large value bank frauds,” reproduced as Annexure-A to Chapter VIII. Its underlying philosophy is worth stating plainly: banks are expected to build early-warning systems that catch signs of trouble — unusual fund diversion, repeated rollover requests, mismatched collateral valuations — well before an account turns into a full write-off, rather than relying on detection only once a loan has already gone bad and recovery has become difficult.

A Filter Above the Filter — the Advisory Board for Banking and Financial Frauds

Based on the recommendations of an RBI Expert Committee on NPAs and Frauds chaired by Shri Y.M. Malegam, the Commission, in consultation with RBI, constituted the Advisory Board for Banking and Financial Frauds (ABBFF). Its jurisdiction is narrow but consequential: it examines fraud allegations against officers of General Manager level and above in a PSB, specifically in respect of frauds in a borrowal account, and it functions as the first level of independent scrutiny before any recommendation or reference reaches the CBI. Individual PSBs must refer all large fraud cases exceeding ₹50 crore to the Board, and can only proceed with further action once the Board's recommendation is in hand — a structured pause that brings outside expert judgment to the largest, most reputationally sensitive fraud allegations before they are formally escalated.

What Changes for Insurance

Banking gets the detailed monetary table, but the Manual also carries provisions written specifically for Public Sector Insurance Companies (PSICs) — covering appointment of surveyors, empanelment of Third Party Administrators, hospitals and brokers in health insurance, protection against cyber frauds affecting digital policies, and guidance on filing Insurance Regulatory returns and periodic reports. The design principle is the same one running through the whole chapter: build systemic checks that shrink the opportunity for fraud in the first place, rather than depending purely on investigation after the loss has already occurred.

Catching Trouble Before the NPA Tag — Early Warning Signals and Red Flagged Accounts

The Manual is candid about why so many bank frauds are discovered too late: laxity in post-disbursement supervision means a large share of fraud cases only come to light once recovery proceedings begin on an account already classified as an NPA — at which point banks are often confronted with the unwelcome discovery that title deeds were never genuine, or that the same property had been mortgaged to secure multiple loans across different lenders. To counter this, loan accounts are expected to be tracked for Early Warning Signals (EWS), as defined by RBI, and any account throwing up such a signal should be put on alert and classified as a Red Flagged Account (RFA). An EWS is not something a bank is free to note and set aside — the Manual treats it as a trigger that must launch a detailed investigation into that account, with EWS tracking integrated into the bank's ordinary credit monitoring process rather than treated as a separate, occasional exercise. A related, chronic problem the Manual flags is the delay many banks show in formally declaring a fraud in consortium or multiple-financing arrangements, which lets a defaulting borrower keep drawing on the banking system at large even after individual lenders have begun to suspect something is wrong.

Update — What Changed Since the 2021 Print

Two developments since 2021 specifically touch this chapter. The CVC Circular dated 29 August 2022 amended Para 8.1 of Chapter VIII to clarify that the “vigilance angle” in Public Sector Bank misconduct must be determined by reading the bank-specific irregularities listed in Para 8.1 together with the general parameters in Paras 1.4.1 to 1.4.3 of Chapter I — a point covered from the general-principles side in our article on Vigilance Administration and the Vigilance Angle. Separately, the CVC Circular dated 1 April 2025, on the “Framework for timely detection, reporting, etc. relating to large value Frauds,” updates the operational instructions on early detection first issued in 2015, reflecting the Commission's ongoing effort to close the time gap between a fraud occurring and its being flagged, investigated, and referred to the right agency. The full text of current circulars is best checked on the Commission's own Acts & Circulars page rather than relied on solely from the printed 2021 edition.

Frequently Asked Questions (FAQ)