The Reserve Bank of India (RBI) is urging banks to closely monitor the origins and end use of funds through increased surveillance, according to a report in The Economic Times.
The central bank’s move is aimed at checking evergreening and bad loans. It will also prevent divergence of funds by corporate borrowers.
“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,” a senior executive with a private bank told the paper.
It is easy to track transfer of funds these days due to technology, electronic payments and inter-linking of banks, the senior executive added.
Moneycontrol could not independently verify the story.
The move also comes at a time when public sector banks are struggling due to shortage of capital to run their daily operations.
The RBI’s rush to tighten monitoring has been heightened since it began the asset quality review (AQR) of banks in 2015, a source told The Economic Times.
Bankers have also highlighted an RBI circular dated December 5, which comes into effect on April 1.
The circular states that banks with an aggregate working capital limit of Rs 150 crore and above should borrow a minimum of 40 percent of the sanctioned loans through working capital loans.
The central bank’s circular adds that a cash credit facility can be given, but only after the working capital limit is fully utilised.