rbi: RBI: Banks Violate Government Entity Lending Guidelines

MUMBAI: The RBI has reiterated its earlier guidelines prohibiting banks from providing loans that are used to finance state government budgets, noting that lenders have been found to flout the regulator’s standards.
“We encountered instances where banks did not strictly adhere to our existing guidance on assessing commercial viability, verifying revenue streams for debt service obligations, and tracking the end use of funds. funds with respect to their financing of state-owned infrastructure/housing projects. entities,” the RBI said in a circular to banks on Tuesday.
The regulator said banks and financial institutions have been found to be in breach of RBI standards which allow lenders to provide term loans only to corporate bodies when lending to government-owned entities . The lenders have also breached RBI guidelines on due diligence on the viability and bankability of projects and ensuring that the project revenues are sufficient to service the debt and that the debt service does not come from no budgetary resources.
The lenders had also breached RBI guidelines on providing bridge loans against receivables from central/state governments through grants, repayments, repayments and capital injections.

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