The Reserve Bank of India (RBI) on June 14 asked banks to comply with regulations pertaining to financing government entities.
RBI 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.
Further, banks have also been found to have violated the RBI’s instructions which inter alia require that in case of projects undertaken by government-owned entities, term loans should be sanctioned only for corporate bodies.
Due diligence should be carried out on the viability and bankability of the projects to ensure that the revenue stream from the project is sufficient to take care of the debt servicing obligations and that the repayment or 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.
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