RBI urges banks to closely watch end use of funds via surveillance
PrintListen to this Article
Senior bank executives said the urgency from the RBI has been heightened after the annual asset quality review (AQR) initiated since 2015. The idea is to either check the origin of funds or the end use of funds to ensure that they are not being diverted or siphoned off.
“Now, with technology, electronic payments and inter linkage between banks, it is possible to track funds. For example, if a big amount comes into my bank, we have to find whether this is part of any loan the corporate has taken or as a result of some asset sale. If these funds are from a third party, we are expected to dive deeper and ask whether the third party has any business dealings with the company,” said a senior executive with a private bank.
Bankers point to an RBI circular released on December 5 which said companies having an aggregate fund-based working capital limit of Rs 150 crore and above from banks must borrow a minimum of 40 per cent of the sanctioned loans through working capital loans. Cash credit which by its nature is perpetual and comes without a time frame can be given only after this limit has been used.
Bankers said the December 5 circular, which will be effective from April 1, is also a part of the central bank’s overall effort to enhance credit discipline among banks.
“There are two or three facilities that banks offer, cash credit general facility and clear credit facilities. The recent RBI circular is aimed at ensuring most of the loans are borrowed as term loans for a specific purpose. This means that a company cannot keep on borrowing cash credit and invest it in a five-year project. In other words, the end usage of the lending will be monitored. If you get a Rs 100 cash credit, you will have to show receivables of a similar amount. The receivables are checked every quarter and any irregularity is the first sign of trouble,” said the chief risk officer of a private sector bank.
This increased surveillance comes at a time when banks are battling record NPAs and some public sector banks are struggling to manage their day-to-day business for want of capital. Bankers say the heightened RBI watch is also a crucial element in preventing fresh NPAs. #casansaar (Source - Economic Times)
Category : RBI | Comments : 0 | Hits : 563
RBI has issued draft rules to tighten dividend payouts by banks by linking distributions to capital adequacy, asset and profit quality, setting a uniform prudential framework effective from FY27. In the previous financial year, banks paid over Rs 75,000 crore dividend after booking record profits. Under RBI's draft rules, dividend payments by banks will be governed by a common set of conditions from FY27. The directions apply to all banking companies, corresponding new banks and SBI, and ...
Listing of an Indian company on international stock exchanges got a push with the Reserve Bank of India (RBI) coming out with regulations under Foreign Exchange Management (FEMA). Experts believe new regulations will help companies utilise foreign exchange more effectively. Regulations have been made public through two notifications. First set of regulations deals with mode of payment and reporting of non-debt instruments. “The proceeds of purchase / subscription of equity shares of an ...
The Lok Sabha elections 2024 are in full swing with electioneering adding much colour to the entire process. However, to ensure that there is no wrongdoing, the Reserve Bank of India (RBI) has sent a missive to Payment System Operators (PSOs) asking them to keep a watch on all suspicious high-value transactions that they may come across in their systems. The general purpose of the letter is to deny the use of electronic fund transfer mechanism to anyone who is intending to influence the election...
he Reserve Bank on Tuesday came out with draft guidelines to further strengthen regulations on payment aggregators, a move aimed at boosting the payment ecosystem. The draft also covers the physical point-of-sale activities of payment aggregators (PAs). The RBI said that given the growth in digital transactions and the significant role that PAs play in this space, the current directions on PAs are proposed to be updated and cover, inter alia, KYC and due diligence of merchants, operations ...
The RBI on Monday eased rules to allow resident entities to hedge their exposures to the price risk of gold using the OTC derivatives in the International Financial Services Centre (IFSC) in addition to the derivatives on the exchanges in the IFSC. Resident entities such as banks were permitted to hedge their exposure to the price risk of gold on the exchanges in the IFSC that are recognised by the International Financial Services Centres Authority (IFSCA), and the new directive provides them...
Comments