The committee has asked `written explanation' from the ICICI for not furnishing the required data on the issue of fund diversion.

The committee, in its scrutiny of the performance of financial institutions, has taken a serious note of the large-scale diversion of funds by the corporates and has asked MoF, RBI, IDBI, IFCI and ICICI to apprise the committee of the reasons as to why there is such a variation in the data furnished by them separately.

While the standing committee has estimated that the total amount of fund diversion from the financial system by corporates can be as high as Rs 2,500 crore, data provided by the institution reveals that the total NPAs of the three financial institutions - IIBI, IFCI and IDBI - due to diversion for the last year stood at about Rs 94 crore, constituting a mere 0.80 per cent of their net NPAs as on March 2000, implying that the extent of NPAs due to diversion in their total NPAs is not large as is made out to be.

Even RBI Governor Bimal Jalan, in his disposition before the committee, had noted that "the amount of NPAs due to diversion are very large."

The committee is "distressed to note" that diversion of funds lent by financial institutions to corporates for purposes other than those mentioned in the loan agreement, specifically to capital markets and real estate business, is the foremost reason for the occurrences of the NPAs in the financial sector, said the committee's report.

What further dismays the committee is the fact that such companies are seldom held accountable, and it is this lack of accountability on the part of the Indian corporates which has caused enormous damage not only to the projects for which loans have been sanctioned, but also to the health of FIs, who in turn, had to earmark huge amounts as provisions for such advances having turned into non-performing assets as perthe regulations laid down by the RBI.

The committee is of the view that the corporates who availed of the loans and subsequently diverted these, did so knowingly with the intentions of getting more funds towards completion of projects, so that FIs also do not classify their accounts as non-performing assets one by making provisions as per the prudential norms specified by the RBI.

The committee apprehends that some FIs, due to practical constraints, could not take drastic action and might have extended further loans to help companies complete the stalled projects, and thereby making the account a performing asset.

In view of all this, the Committee recommends the following:n No institutional finance should be made available to the same promoters who have diverted the funds for a minimum period of 15 years for starting any new venture.

n In case any promoter who diverted the funds happens to be on the Board of Directors of other company which access the capital markets for raising equity & debt, such a fact should be mentioned in the prospectus and offer documents. Accordingly, SEBI should be asked to make amendments to disclosure requirements. The relevant Acts may be amended if necessary for purpose.

n If any of the directors of companies which have diverted funds happens to be on the Board of other Companies, wherein DFIs have substantial equity exposure, DFI should ensure his exit from the Board.

n The DFIs should take a proactive approach in changing the managements of the companies who diverted the funds.