The Reserve Bank of India Vide its notification dated 21st August 2020 has directed all the Scheduled Commercial Banks, Small Finance Banks and all urban cooperative banks to avoid repeated ad hoc and short review of credit facilities without justifiable reasons.
RBI has been receiving complaints that banks are charging high differential interest rates and nit providing adequate financial support to businesses in line with the announcements made by the government from time to time to help the crisis-ridden industry.
Therefore banks are expected to have a detailed Board approved policy on methodology and periodicity for review/renewal of credit facilities within the overall regulatory guidelines, and adhere to the same strictly.
Further timely and comprehensive review/renewal of credit facilities should be an integral part of the Board approved loan policy and credit risk management framework, and banks should avoid frequent and repeated ad-hoc/short review/renewal of credit facilities without justifiable reasons.
Banks are also advised to capture all the data relating to regular as well as ad-hoc/short review/renewal of credit facilities in their core banking systems/management information systems and make the same available for scrutiny as and when required by any audit or inspection by Auditors/RBI. Further, the processes governing review/renewal of credit facilities should be brought under the scope of concurrent/internal audit/internal control mechanism of banks with immediate effect.
Image download link: