Finance ministry asks RBI to tighten norms to check fund diversion

Sep 03 2014, 01:41 IST
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SummaryAgainst the backdrop of the Kingfisher Airlines case, the Union finance ministry...

Against the backdrop of the Kingfisher Airlines case, the Union 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 by opening multiple current accounts outside the members of the consortium, sources said.

Therefore, the ministry has urged the RBI to tighten the norms, sources said.

Kingfisher Airlines allegedly diverted funds by opening a current account in HDFC Bank, sources said, adding that this was not known to the consortium of lender headed by the State Bank of India.

These banks have an outstanding debt of R6,521 crore from the now-grounded carrier. The RBI can monitor such diversion of funds as it is the sector regulator and there is a need to strengthen the monitoring mechanism, sources said. A spate of defaults have taken place in the banking system in the recent past. But, most were due to the economic slowdown and only a small proportion of defaults were intentional.

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