RBI pulls up banks for flouting norms on infra loans to govt entities

Must follow instructions in 'letter and spirit'

The Reserve Bank of India (RBI) on Tuesday came down heavily on banks for failing to strictly comply with prudential norms for financing infrastructure and housing projects of government-owned entities.

It asked banks to follow the regulator’s instructions on aspects like assessing commercial viability, revenue streams, and the end use of funds in “letter and spirit”.

The RBI said it had come across instances where banks had not been strictly complying with instructions on assessing commercial viability and ascertaining revenue streams for debt-service obligations.

It also flagged the lack of adherence to rules about monitoring the end use of funds given to infrastructure/housing projects of government-owned entities.

Banks and financial institutions have been found to violate instructions that require that in the 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 is sufficient to take care of debt-service obligations. The repayment/servicing of debt should not be from budgetary resources, the RBI said.

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, the RBI added.