Mumbai: The Reserve Bank of India (RBI) on Monday asked banks to put in a place a timeline for credit decisions for all loans to eliminate “inordinate delays" by banks in convey their credit decisions to borrowers. The system must be put in place within 30 days, said the RBI in a notification on Monday.

“It has, however, been brought to our notice that there have been inordinate delays on part of banks in conveying their credit decisions leading to delays in project implementation," said the RBI while asking banks to asking banks to make suitable disclosures on the timelines for conveying credit decisions through their websites, notice-boards, product literature, etc.

RBI, however, said that there should be no compromise on due dilligence while appraising a loan. It also did not specify any timelines to be followed for different tyopes of loans. Instead, RBI has asked banks to institute a suitable monitoring mechanism for reviewing applications pending beyond the specified period.

“While banks are required to carry out necessary due diligence before arriving at credit decisions, timely and adequate availability of credit is a pre-requisite for successful implementation of large projects," RBI said while mentioning that banks already need to indicate a time frame within which loan applications of up to Rs2 lakh will be processed.

“It is felt that a similar practice of time-bound decision making may be required in the case of other loans too," RBI said.

“We generally tell the companies about the timelines for our decision, but now the difference is that RBI wants it to be a formal part of the process, that’s not a problem. We sometimes deliberately delay when the project is complex and need a lot of evaluation for deciding on the sanction. Ultimately, it is not in our interest to delay giving loans because we want to grow our business," said a banker involved in project loans with a large public sector bank who did not wish to be named.

Sri Karthik Velamakanni, banking analyst at Espirito Santo Securities, said the RBI’s intention could be to ensure credit delivery for stalled projects improves because of quicker decisions by banks.

“Even if banks reject a credit proposal in a stipulated time frame, it could at least move to another bank rather that get stuck. The RBI move also should be seen in the context of the frauds that are being uncovered in the public sector banks because of which there could be a tendency by the top management to not take decisions quickly fearing scrutiny. The RBI wants to ensure that decision making in banks in not hampered in any way," Velamakanni said.

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