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RBI asks banks to make sure end use of loans

RBI asks banks to make sure end use of loans
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First Published: Sat, Jan 15 2011. 12 34 AM IST
Updated: Sat, Jan 15 2011. 12 34 AM IST
Mumbai: The Reserve Bank of India (RBI) on Friday asked banks to make sure that proper mechanisms are followed to effectively monitor the end use of loans.
The RBI said its review has found that in some cases banks are not following the expected level of due diligence, thus facilitating diversion of funds by the borrowers.
The shortcomings, according to RBI, included crediting of term loan disbursements to the current/cash credit accounts of borrowers and utilisation thereof for day-to-day operations and exclusive reliance on Chartered accountants.
It is advised that the efficacy of the existing machinery in your bank for post-sanction supervision and follow-up of advances may please be evaluated and made robust, wherever considered necessary, the RBI said in a communication to bank chiefs.
The central bank said that effective monitoring of the end use will act as a deterrent for borrowers to misuse the loan amount besides safeguarding the bank’s interest
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First Published: Sat, Jan 15 2011. 12 34 AM IST
More Topics: RBI | Banks | Loans | Funds | Cash Credit |