RBI asks banks to review finance to Government-owned entities

BL Mumbai Bureau | Updated on: Jun 14, 2022

Inflation vs growth RBI’s dilemma PAUL NORONHA | Photo Credit: PAUL NORONHA

Central bank comes across instances of non-compliance with its extant instructions

The RBI has asked Banks to carry out a review of the finance extended by them to Government-owned entities and place before their Boards a comprehensive report on the status of their compliance with its instructions relating to “Bank finance to Government owned entities” within three months.

This directive comes in the backdrop of the RBI seeing instances where banks have not been strictly complying with its extant instructions on assessment of commercial viability, ascertainment of revenue streams for debt servicing obligations and monitoring of end use of funds in respect of their financing of infrastructure/housing projects of government-owned entities.

Banks/ FIs have also been found to have violated RBI instructions which require that term loans should be sanctioned only for corporate bodies; due diligence should be carried out on viability and bankability of the projects to ensure that revenue stream from the project is sufficient to meet the debt servicing obligations; and that the repayment is not from budgetary resources.

RBI drew attention of the banks especially towards the specific instructions relating to “criteria for financing”, “appraisal” and “bridge loans against receivables from Government” contained in its Master Circular on ‘Loans and Advances – Statutory and Other Restrictions’. and the Master Circular on ‘Housing Finance’.

The central bank reiterated that banks are required to follow the instructions in letter and spirit.

Published on June 14, 2022
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