The Telegraph
Since 1st March, 1999
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Scanner on co-operative loans

Mumbai, Aug. 2: The Reserve Bank of India (RBI) today asked urban co-operative banks to strictly follow norms on opening of current accounts after it stumbled on evidence of borrowers securing a similar facility with banks other than the one they already borrow from.

“It has been brought to our notice that some borrowers open current accounts with banks other than the lending bank to overcome credit discipline imposed on them.

“They usually resort to this practice when their loan accounts turn irregular. They shy away from depositing money that would regularise these accounts,” the central bank said in a notification issued to primary urban co-operative banks.

Underscoring the importance of credit discipline for bringing down non-performing assets (NPAs), the RBI has asked banks to insist on a declaration from individuals that they do not enjoy a credit facility with other commercial banks. In case they do, an undertaking giving particulars will have to be furnished.

Banks will also ascertain whether the customer is a member of any other co-operative society/bank and if so, they should get the full details of the society/bank, number of shares held, details of credit facilities such as nature, quantum, outstanding and due dates among others.

If a customer has already signed up as a borrower with any other commercial bank, the bank opening the current account should inform the existing lender. In such cases, it should specifically ask for a no-objection certificate.

Cooperative bank/society lending to individuals or entities must comply with the requirements of the Co-operative Societies Act or state government rules related to membership and borrowings, the Reserve Bank said.

The central bank has laboured the point that these procedures are essential for overall credit discipline. Failure to adopt them would only abet diversion of funds.

“Non-adherence to the discipline could be perceived to be abetting the siphoning of funds. Such violations which are either reported to RBI or noticed during our inspection would make the concerned banks liable for penalty under the Banking Regulation Act, 1949,” it added.

ECB plans

Companies have informed the RBI they intend to raise foreign loans over $790-million under the automatic route. As many as 74 proposals worth $793 million have reached the central bank. Firms want to use these borrowings to meet working expenses, repay loans and pay for capital expenditure, RBI data for June released here today showed.

Clarifications have been sought from 26 of them, including Sun Microsystems India and ICICI Onesource, on how exactly they would use the loans and whether they meet the eligibility norms for external loans. Britannia, Lupin, Great Eastern Shipping, Jindal Steel and Power, Tata Teleservices (Maharashtra) and Reliance Energy are some of the key firms that have told the RBI about their fund-raising plans.

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