PremiumRBI said that banks and financial institutions have been found to have violated instructions which mandate that for projects undertaken by government owned entities, ‘term loans should be sanctioned only for corporate bodies’
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MUMBAI : The Reserve Bank of India (RBI) on Tuesday said it has found banks flouting norms related to lending to government-owned entities and sought strict adherence to regulatory guidelines.
"We have come across instances where banks have not been strictly complying with our 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," the regulator said in a statement posted on its website.
RBI said that banks and financial institutions have also been found to have violated instructions which mandate that for projects undertaken by government owned entities, "term loans should be sanctioned only for corporate bodies".
In an earlier circular in July 2015, RBI defined corporate entities as public sector undertakings registered under the Companies Act or a Corporation established under the relevant statute.
The norm, RBI said on Tuesday, also states that due diligence should be carried out on viability and bankability of the projects to ensure that revenue stream from the project is sufficient to take care of the debt servicing obligations.
Lastly, banks are supposed to ensure that the repayment of debt is not from budgetary resources of the borrower.
"It is reiterated that banks are required to follow these instructions in letter and spirit," it said.
The regulator directed banks to conduct a review and place before their bards, a comprehensive report on the status of compliance with the instructions within three months from the date of this circular.