Concerned over violation of its norms, the RBI on Tuesday asked banks to follow its instructions in "letter and spirit" while extending loans to government-owned entities for infrastructure and housing projects.
In a circular, the RBI said it has come across instances where banks have not been strictly complying with extant instructions on assessment of commercial viability, ascertainment of revenue streams for debt servicing obligations and monitoring of end use of funds in respect of their financing of infrastructure/ housing projects of government-owned entities.
Banks/ financial institutions have also been found to have violated RBI's instructions which require that in case of projects undertaken by government-owned entities, term loans should be sanctioned only for corporate bodies.
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Also, due diligence should be carried out on viability and bankability of the projects to ensure that revenue stream from the project is sufficient to take care of the debt servicing obligations, it said.
"Attention of the banks is especially drawn towards the specific instructions...It is reiterated that banks are required to follow these instructions in letter and spirit," the Reserve Bank of India (RBI) said.
The RBI also asked the banks to carry out a review and place before their boards a comprehensive report on the status of compliance with the instructions within three months.
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