**Policy Summary: RBI/2022-23/71 - Bank Finance to Government-Owned Entities**
**Date:** June 14, 2022
**Issuing Authority:** Reserve Bank of India (RBI)
**Target Audience:** All Scheduled Commercial Banks (excluding Regional Rural Banks - RRBs)
**Subject:** Reinforcement of extant instructions regarding bank finance to government-owned entities, specifically concerning infrastructure and housing projects.
**Key Concerns:** The RBI has observed instances of non-compliance by banks and financial institutions (FIs) with existing guidelines. These violations pertain to:
* Inadequate assessment of commercial viability of projects.
* Insufficient ascertainment of revenue streams for debt servicing obligations.
* Inadequate monitoring of the end-use of funds.
* Sanctioning term loans to non-corporate government entities.
* Failure to conduct due diligence on project viability and bankability, ensuring revenue streams cover debt servicing.
* Repayment servicing of debt using budgetary resources.
**Policy Directive:** The RBI directs banks to strictly adhere to the instructions outlined in the following circulars:
* Master Circular DBR.No.Dir.BC.1013/03.00/2015-16 dated July 1, 2015, on Loans and Advances – Statutory and Other Restrictions (specifically paragraphs 2.3.7.3, 2.3.7.5, and 2.3.23).
* Master Circular DOR.CRE.REC.No.0608/12.001/2022-23 on Housing Finance dated April 1, 2022 (specifically paragraph 2Bix).
**Action Required:** Banks are required to conduct a comprehensive review of their compliance with these instructions and present a report to their respective Boards within three months of the circular's date (i.e., by September 14, 2022).
**Contact:** Manoranjan Mishra, Chief General Manager, Reserve Bank of India.
Key Entities Referenced
Reserve Bank of India: The central bank of India, referred to as RBI in the document.
All Scheduled Commercial Banks: Refers to all commercial banks in India that are listed in the Second Schedule to the Reserve Bank of India Act, 1934, excluding Regional Rural Banks (RRBs).
Loans and Advances Statutory and Other Restrictions: Subject of Master Circular DBR.No.Dir.BC.1013.03.00201516 dated July 1, 2015 issued by Reserve Bank of India.
Housing Finance: Subject of Master Circular DOR.CRE. REC.No.0608.12.001202223 dated April 1, 2022 issued by Reserve Bank of India.
Government owned entities: Refers to entities owned by the government. The document addresses bank financing to these entities.
Manoranjan Mishra: Chief General Manager at Reserve Bank of India, signatory of the circular.
Infrastructure Projects: Refers to infrastructure projects financed by banks that are undertaken by government owned entities.
Financial Institutions: Refers to entities providing financial services, also called FIs in the document.
RBI/2022-23/71
DOR.CRE.REC.No.47/13.03.00/2022-23 June 14, 2022
All Scheduled Commercial Banks
(Excluding RRBs)
Madam / Dear Sir
Bank finance to Government owned entities
Please refer to the Master Circulars DBR.No.Dir.BC.10/13.03.00/2015-16 dated July 1,
2015 on ‘Loans and Advances – Statutory and Other Restrictions’ and DOR.CRE.
REC.No.06/08.12.001/2022-23 dated April 1, 2022 on ‘Housing Finance’.
2. We have come across instances where banks have not been strictly complying with
our extant instructions on assessment of commercial viability, ascertainment of revenue
streams for debt servicing obligations and monitoring of end use of funds in respect of
their financing of infrastructure/ housing projects of government owned entities.
3. Banks/ FIs have also been found to have violated our instructions which inter alia
require that in case of projects undertaken by government owned entities, term loans
should be sanctioned only for corporate bodies; due diligence should be carried out on
viability and bankability of the projects to ensure that revenue stream from the project is
sufficient to take care of the debt servicing obligations; and that the repayment/ servicing
of debt is not from budgetary resources.
4. Attention of the banks is especially drawn towards the specific instructions contained
in the paragraphs referred to in the Annex. It is reiterated that banks are required to follow
these instructions in letter and spirit.5. Banks are advised to carry out a review and place before their Boards, a
comprehensive report on the status of compliance with the instructions within three
months from the date of this circular.
Yours faithfully,
(Manoranjan Mishra)
Chief General ManagerAnnex
Bank finance to Government owned entities - Extant Instructions
a) Para 2.3.7.3 – ‘Criteria for Financing’ of Master Circular
DBR.No.Dir.BC.10/13.03.00/2015-16 on ‘Loans and Advances – Statutory and Other
Restrictions’ dated July 1, 2015
b) Para 2.3.7.5 – ‘Appraisal’ of Master Circular DBR.No.Dir.BC.10/13.03.00/2015-16 on
‘Loans and Advances – Statutory and Other Restrictions’ dated July 1, 2015
c) Para 2.3.23 – ‘Bridge Loans against receivables from Government’ of Master Circular
DBR.No.Dir.BC.10/13.03.00/2015-16 on ‘Loans and Advances – Statutory and Other
Restrictions’ dated July 1, 2015
d) Para 2(B)(ix) of Master Circular DOR.CRE.REC.No.06/08.12.001/2022-23 on
‘Housing Finance’ dated April 1, 2022