Banks will now have to provide a time frame by which a loan proposal will receive sanction. Lenders will also have to clearly explain the procedure for clearing the loan proposal to the borrower. The Reserve Bank of India has asked banks to put in place a policy incorporating these two features within 30 days. It has been brought to our notice that there have been inordinate delays on part of banks in conveying their credit decisions, leading to delays in project implementation. While banks are required to carry out necessary due diligence before arriving at credit decisions, timely and adequate availability of credit is a prerequisite for successful implementation of large projects, the RBI said in a circular to all banks. Until now, banks, at the time of receiving the application, were asked to stipulate the time frame within which loan proposals up to Rs 2 lakh will be disposed of. From now on, this practice will have to be followed in the case of other loans as well. The new norms are part of the central banks guidelines on fair practices code for lenders. The code was introduced around the time the government gave legal powers to banks to attach and sell properties of defaulters. The code was aimed at balancing lenders responsibilities with their rights. The latest guidelines come at a time when the central bank is tightening the screws on defaulters by forcing banks to classify as a defaulter a borrower who has failed in its obligation to other banks. It is, therefore, advised that banks should clearly delineate the procedure for disposal of loan proposals, with appropriate timelines, and institute a suitable monitoring mechanism for reviewing applications pending beyond the specified period. It is, however, reiterated that there should not be any compromise on due diligence requirements. Banks may also make suitable disclosures on the timelines for conveying credit decisions, RBI said.
Posted on: Tue, 02 Sep 2014 03:57:40 +0000