Forensic Audit Services Under RBI

Banks and lenders in India are required, under the Reserve Bank of India's fraud risk management and wilful default frameworks, to commission an independent forensic audit when a borrower account displays warning signals of diversion of funds, misrepresentation, or possible fraud, particularly in consortium and multiple banking arrangements above specified exposure thresholds. A forensic audit under this framework examines whether borrowed funds were utilised for the purposes for which they were sanctioned, and whether the conduct of the borrower and its promoters is consistent with the terms of the credit facility. Given the consequences that flow from an adverse forensic audit finding, including wilful defaulter classification and referral to investigating agencies, the process demands rigour, objectivity, and familiarity with RBI's expectations.

Why This Matters

An adverse forensic audit finding can trigger classification as a fraud account or wilful defaulter, with serious consequences for the borrower including restricted access to further credit, reputational damage, and potential referral to investigating and regulatory authorities. For lenders, a forensic audit that is not conducted with sufficient rigour or that does not adequately address the red flags identified in the account can weaken the bank's position in subsequent recovery, insurance, or enforcement proceedings. Both borrowers and lenders therefore have a strong interest in ensuring the forensic audit process is thorough, fair, and properly documented.

How We Help

Fund Flow and End-Use Verification

We trace the utilisation of sanctioned credit facilities against the stated purpose, examining bank statements, invoices, and underlying transactions to determine whether funds were diverted to related parties, used for purposes other than sanctioned, or routed through structures that obscure their end-use.

Review of Financial Statements and Representations

We examine the borrower's financial statements, stock and receivable statements submitted to the lender, and other representations made at the time of sanction and during the tenure of the facility, to identify any material misstatement, inflation of assets, or inconsistency with underlying business records.

Related Party and Group Structure Analysis

Given the frequent involvement of group companies and related parties in fund diversion, we map corporate and financial relationships across the borrower group to assess whether transactions with connected entities were conducted on an arm's length basis or facilitated the movement of funds away from the lending bank's security.

Forensic Audit Reporting Aligned to RBI Expectations

Our reports are structured to address the specific red flags and terms of reference set by the lender or consortium, presenting findings, supporting evidence, and conclusions in a manner consistent with RBI's fraud reporting and wilful default guidelines, to support the bank's subsequent decision-making and regulatory reporting obligations.

Who Needs This

• Banks and financial institutions requiring forensic audits under RBI-mandated red flag or fraud frameworks
• Consortium and multiple banking arrangement lenders coordinating a joint forensic exercise
• Borrowers seeking an independent review to respond to lender concerns
• Resolution professionals and lenders assessing accounts alongside insolvency proceedings

Our Approach

We approach RBI-mandated forensic audits with an understanding of the regulatory framework within which lenders operate and the standard of documentation expected when findings may lead to fraud classification or wilful default proceedings. Our engagement teams work closely with the appointing bank or consortium to agree a clear terms of reference, maintain transparent communication on findings as the audit progresses, and ensure that conclusions are supported by verifiable evidence rather than inference alone.

Get in Touch

To discuss how we can support you with forensic audit services under RBI, write to us at info@agarwalurs.com.