The Commission observed vulnerability of junior untrained staff on probation and their misuse by senior officials.
The Central Vigilance Commission (CVC) has red-flagged the processing and grant of loans by newly recruited staff on probation in banks as they can be misused by senior officials, and asked the Finance Ministry to issue necessary instructions to public sector banks in this regard.
The move comes in the backdrop of cases of multi-crore frauds in banks and instances of loans turning into non-performing assets (NPAs).
The anti-corruption watchdog had recently referred to CBI Rs 6,100 crore (Rs 61 billion) forex scam allegedly misusing Bank of Baroda.
While examining the case of banks, the Commission observed vulnerability of junior untrained staff on probation and their misuse by senior officials who instruct them to process and recommend loans they are not equipped to do, a senior CVC official said.
"The Commission as a system improvement advised Department of Financial Services to issue suitable instructions to public sector banks that newly recruited officers who are under probation or having a service of less than two years should not be asked to recommend and process loans. They may however do so as a learning process," he said.
A total of 5,078 banks employees were punished last year for their alleged involvement in corruption and other irregular practices by the CVC. The Commission had received 6,836 complaints related to alleged graft against bank employees in 2014.
In the backdrop of Bank of Baroda scam, the CVC has also asked the Reserve Bank and the Indian Banks' Association to red-flag multiple transactions of smaller amounts from a single account and ensure compliance of KYC norms to check fraudulent forex transactions.
At present, an alert is generated only when foreign exchange (forex) remittance is over $1 lakh.