End Use of Funds - Monitoring - RBI - Reserve Bank of India
End Use of Funds - Monitoring
RBI/2010-11/368 January 14, 2011 The Chairman/Chief Executives Officer Dear Sir, End Use of Funds - Monitoring The Reserve Bank, as a part of ongoing supervision, had undertaken an assessment of the practices in vogue at certain banks for ensuring the end use of funds. 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 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, as also, exclusive reliance on Chartered Accountants’ certification both in regard to infusion of promoters' contribution and deployment of banks' funds. 2. In the context of the above, it is advised that the efficacy of the existing machinery in your bank for post-sanction supervision and follow-up of advances may please be evaluated and made robust, wherever considered necessary. Illustratively, the systems and procedures may broadly include the following:
3. As would be appreciated, effective monitoring of the end use of funds lent is of critical importance in safeguarding a bank’s interest. Further, this would also act as a deterrent for borrowers to misuse the credit facilities sanctioned, and in the process, help build a healthy credit culture in the Indian banking system. 4. Please acknowledge receipt. Yours faithfully, (Dr.N. Krishnamohan) |