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Diligence reports — mandated by the RBI in 2008 — for consortium lending by banks are in for a makeover. In an effort to ensure that the current Due Diligence Mechanism is updated, stays relevant, and is in sync with contemporary views and expectations, the Institute of Company Secretaries of India (ICSI) had constituted a specialised task force comprising eminent experts to thoroughly review the mechanism and the accompanying format of diligence report for banks.
The report of the task force was released by its Chairman BP Vijayendra, Principal Chief General Manager (retd), RBI, and handed over to NS Vishwanathan, Deputy Governor of RBI, at an event in Mumbai recently, sources said.
A review of the diligence mechanism was warranted in the wake of multifarious regulatory developments in recent years. The new Companies Act, 2013, had several far-reaching provisions that impacted the diligence mechanism and the format of diligence report for banks.
Although the RBI had mandated diligence reports in 2008, banks have been hesitant adopters to this concept.
In fact, banks’ observance to the RBI circular was more in breach as they asked their borrower-customers to obtain the reports as against RBI mandating banks themselves to obtain reports from borrower-customers. In all, the story so far has been that of ‘weak implementation’, thereby debilitating the best of intentions.
New deal However, with Prime Minister Narendra Modi himself recently flagging (at FICCI AGM) the issue of lack of diligence among banks in their lending operations, the review of diligence mechanism and the need to have a contemporaneous diligence report format has gained currency.
The review is being pursued at a time when public sector banks are going through a turmoil on the NPA management front.
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