Letters: Wanted - fund trackers

This refers to the report “Banks curb short-term lending to companies” (February 11). The decision comes in the wake of difficulties that banks experience in ensuring proper end-use of bank funds. It may be recalled that the banks’ inability to monitor the end-use of funds is not a new issue. In fact, when the Reserve Bank of India introduced certain schemes (read the credit authorisation scheme, credit monitoring arrangement), the core issue was the end-use of funds. But all those schemes have met with little success as far as the end-use is concerned. Even the Tandon Committee and Chore Committee recommendations have not been able to guarantee a proper end-use of funds. The loophole can be traced in the very method of the disbursement of funds (read cash credit) and the follow-up. Unlike project finance or term loans, working capital lending has had its weak spots. Certain companies have taken advantage of such lacunae in borrowing arrangements with banks. The banks lack the skill to monitor the end-use of funds. They have put out certain reports on corporate lending and assumed that this information system would ensure a productive use of funds. However, the companies have had the last laugh.

K V Rao, Bangalore

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