The Reserve Bank of India (RBI) on Tuesday flagged cases of poor due diligence by banks whereas funding government-owned entities. As a corrective measure, the regulator has requested banks to compile complete stories on the standing of compliance with a set of directions on the factors for financing inside three months.
We have come throughout cases the place banks haven’t been strictly complying with our extant directions on evaluation of economic viability, ascertainment of income streams for debt servicing obligations and monitoring of finish use of funds in respect of their financing of infrastructure/ housing initiatives of government-owned entities,” the RBI stated in a notification.
Banks and monetary establishments have additionally been discovered to have violated the central financial institution’s directions which require that in case of initiatives undertaken by government-owned entities, time period loans needs to be sanctioned just for company our bodies, due diligence needs to be carried out on viability and bankability of initiatives to make sure that income stream from the undertaking is ample to care for the debt servicing obligations, and that the compensation or servicing of debt is just not from budgetary sources.
Laying down a set of particular directions in an annex accompanying Tuesday’s round, the RBI reiterated that banks should observe them in letter and spirit.
Banks are suggested to hold out a overview and place earlier than their boards a complete report on the standing of compliance with the directions inside three months from the date of this round,” the notification stated.
Source: www.financialexpress.com”