RBI slams banks to follow instructions in true letter while extending loans

Circular no. RBI/2022-23/71 DOR.CRE.REC.No.47/13.03.00/2022-23, Dated: 14.06.2022

The RBI has observed that banks have not been strictly complying with extant instructions on assessment of commercial viability, ascertainment of revenue streams for debt servicing obligations, and monitoring of end-use of funds w.r.t financing of infrastructure/ housing projects of Government-owned entities. Therefore, RBI has advised banks to carry out a review and place before their Boards, a comprehensive report on the status of compliance with instructions within 3 months from 14.06.2022.

RBI also found that Banks/ FIs have been violating instructions which inter alia require that in case of projects undertaken by government-owned entities, term loans should be sanctioned only for corporate bodies; due diligence should be carried out on the viability and bankability of the projects to ensure that revenue stream from the project is sufficient to take care of the debt servicing obligations; and that the repayment/ servicing of debt is not from budgetary resources. RBI reiterated that banks are required to follow these instructions in letter and spirit.

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