RBI: Expected due diligence level not followed
The Reserve Bank of India (RBI) said on Friday a review of some banks revealed that in certain cases the lenders failed to monitor the use of funds by borrowers effectively, enabling them to divert the money into other areas.
January 14, 2011 / 20:13 IST
The Reserve Bank of India (RBI) said on Friday a review of some banks revealed that in certain cases the lenders failed to monitor the use of funds by borrowers effectively, enabling them to divert the money into other areas.
"The review revealed that the expected level of due diligence had not been exercised in some cases facilitating diversion of funds by the borrowers," the central bank said."The shortcomings, amongst others, included, crediting of term loan disbursements to the current/cash credit accounts of borrowers and utilisation thereof for day-to-day operations..."In a notification released on the central bank's website, the bank reiterated that the process of post loan sanction supervision and follow-up of advances should be made robust.The RBI emphasised that banks must monitor that companies availing of loans are using the money for the purpose specified, deterring them from misusing the credit facilities sanctioned by the bank.RBI, in its circular, also reiterated the guidelines on monitoring end use of funds after its ongoing supervision process revealed some lapse in the due diligence process in some banks.A series of corruption scandals broke in 2010 in India, the chief among them an alleged same in the telecom sector that a government auditor said may have cost the nation up to USD 39 billion.According to some media reports, some banks have also come under the scanner of the Central Bureau of Investigation in a case related to allocations of mobile phone licences. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
