Bank lending norms should be tightened, FinMin to RBI

Govt to curb funds diversion by borrowers

Against the backdrop of Kingfisher case, the Finance Ministry has asked the Reserve Bank to tighten lending norms to prevent borrowers from opening multiple current account outside their consortium banks.

There are a few instances where defaulting borrowers indulged in diversion of funds have taken place by opening of multiple current account outside the members of the consortium, sources said. Therefore, sources said, the Finance Ministry has urged RBI to tighten the norms and monitoring system so that such activities could be prevented.

According to sources, Kingfisher Airlines allegedly diverted funds by opening a current account in HDFC Bank and had a balance of Rs 7.5 crore as on date. This fact was not known to the consortium of lender headed by State Bank of India. These banks have an outstanding debt of Rs 6,521 crore from the now-grounded carrier.

Monitoring mechanism

Such diversion can be monitored by Reserve Bank as it is sector regulator and there is need to strengthen the monitoring mechanism, sources said.

 There has been a spate of defaults taking place in banking system. Majority of them are due to slow economic growth but there is small proportion of cases where defaults are intentional.

Recently, the Finance Ministry had ordered limited forensic audit into some non-performing accounts of Kolkata- based UCO Bank to find out whether there were any irregularities in sanction of loans. Forensic audit is being conducted against Dena Bank and Oriental Bank of Commerce (OBC) where some officials were suspected of misappropriating funds worth Rs 436 crore from their fixed deposit customers.

Gross NPA of the public sector banks increased from Rs 1,64,462 crore to Rs 2,27,264 crore at the end of March 2014. Financial Stability Report released by RBI recently said that infrastructure, iron and steel, textiles, mining and aviation services contributed significantly to the level of stressed advances.