RBI: Banks violating government entity lending guidelines
MUMBAI: The RBI has reiterated its earlier guidelines barring banks from providing loans that are used to finance state government Budgets noting that lenders have been found to flout the regulator’s norms.
“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 governmentowned entities,” the RBI said in acircular to banks on Tuesday.
The regulator said that banks and financial institutions have been found to be violating RBI’s norms that allow lenders to provide term loans only to corporate bodies when lending to government-owned entities. Lenders have also violated RBI guidelines on carrying out due diligence on viability and bankability of the projects and ensure that the project revenue is enough to service debt and that debt servicing is not from budgetary resources.
Lenders had also violated RBI guidelines on providing bridge loans against amounts receivable from central/state governments by way of subsidies, refunds, reimbursements, and capital contributions.