RBI asks banks to review finance to government-owned entities

15 Jun 2022 , 12:26 PM

The Resereve Bank of India on June 14, 2022 has asked Banks to carry out review of the finance extended by them to Government-owned entities.

“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 RBI said in an official statement.

In addition to this, RBI said, “The Banks have also been found to have violated our instructions which inter alia require that in case of projects undertaken by government owned entities, term loans should be sanctioned only for corporate bodies.”

Further, 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; and that the repayment/ servicing of debt is not from budgetary resources.

Banks are advised to carry out a review and place before their Boards, a comprehensive report on the status of compliance with the instructions within three months from the date of this circular, the RBI said in a release.