RBI asks banks to monitor use of santioned loans

The Reserve Bank of India has asked banks to improve their machinery to supervise if borrowers are using funds for the purpose for which the loans are given.

The central bank has told banks to demand a certificate from borrowers that funds have been used for sanctioned purposes and to stop sanctions and start legal action if the certificate is false. The RBI says that its inspection of banks books has revealed instances of banks not monitoring the use of funds and thus facilitating diversion of funds.  The central bank has also accused banks of crediting term loans to the current accounts of borrowers and allowing them to be utilised for day-to-day operations. Banks are also, relying exclusively on chartered accountants' certification with regard to infusion of promoters' contribution and deployment of banks' funds, the RBI said.