Credit facilities must come under internal control mechanism: RBI

The Reserve Bank of India (RBI), on Friday, directed banks to bring the processes governing review/ renewal of credit facilities under the scope of audit (concurrent and internal)/ internal control mechanism with immediate effect.

The central bank also advised banks to capture all the data relating to regular as well as ad-hoc/ short review/ renewal of credit facilities in their core banking systems/ management information systems.

Further, banks have to make the same available for scrutiny as and when required by any audit or inspection by auditors/RBI, the central bank said in a circular addressed to Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks and Urban Co-operative Banks..

The RBI’s directives come in the wake of its analysis of practices followed by the lenders while reviewing/renewing credit facilities bringing out certain supervisory concerns.

These concerns include that of frequent/ repeated ad-hoc review/ renewal of credit facilities, instead of regular review/ renewals.

The central bank also came across non-capturing and/ or inaccurate capturing of review/ renewal data in the banking/ information systems, and non-coverage of review/ renewal activities under the concurrent/ internal audit mechanism.

“In this connection, we reiterate that timely and comprehensive review/ renewal of credit facilities should be an integral part of the board-approved loan policy and credit risk management framework, and banks should avoid frequent and repeated ad-hoc/ short review/ renewal of credit facilities without justifiable reasons,” the RBI said.

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