The Reserve Bank of India (RBI) today said some banks were lax in checking end use of funds, thereby facilitating diversion of loans by borrowers.
RBI, in a communication to bank chiefs, has asked them to review the systems for post-sanction supervision.
An assessment of practices in vogue at some banks to ensure end-use of funds showed the due diligence was not up to the mark, it said. RBI said in some cases the term loan money was credited to cash and current accounts. The money was used for day-to-day operations, it said.
Banks relied exclusively on chartered accountants’ certificates, both for infusion of promoters’ contribution and deployment of bank funds.
As a step to improve oversight, banks should do periodical scrutiny of operating and financial statements of borrowers. They should also regularly visit the assisted units and inspect the securities charged or hypothecated for loans, RBI said. They must seek a certificate from borrowers that the funds had been used for approved purposes. In case the certificate was invalid, banks must take prompt corrective steps, including withdrawal of sanctioned facilities and legal action, it said.