Specify time frame for Disposal of loan applicable ‑RBI

RBI/2014–15/199 DBOD.No.BP.BC. 35/21.04.048/2014–15 Sep­tem­ber 1, 2014

Time­lines for Cred­it Deci­sions Please refer to our cir­cu­lars IECD.No.24/08.13.08/96–97 dat­ed April 15, 1997 and IECD.No.12/08.13.08/96–97 dat­ed Octo­ber 29, 1996 in terms of which instruc­tions relat­ing to for­ma­tion of con­sor­tium by banks beyond a thresh­old lim­it were with­drawn. Banks were allowed to evolve appro­pri­ate mech­a­nism for adop­tion of sole bank/multiple bank/consortium or syn­di­ca­tion approach, by fram­ing nec­es­sary ground rules on oper­a­tional aspects. The objec­tive of grant­i­ng oper­a­tional free­dom was to expe­dite the process of cred­it decisions.

2. It has, how­ev­er, 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 pre-req­ui­site for suc­cess­ful imple­men­ta­tion of large projects. In this con­nec­tion, banks’ atten­tion is drawn to the guide­lines con­tained in cir­cu­lar DBOD.Leg.No.BC.104/ 09.07.007/2002–03 dat­ed May 5, 2003 on ‘Guide­lines on Fair Prac­tices Code for Lenders’, where­in we have stip­u­lat­ed that the time frame with­in which loan appli­ca­tions up to Rs.2 lakh will be dis­posed of should be indi­cat­ed at the time of accep­tance of loan appli­ca­tions. It is felt that a sim­i­lar prac­tice of time bound deci­sion mak­ing may be required in the case of oth­er loans too.

3. 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 through their web­sites, notice-boards, prod­uct lit­er­a­ture, etc.

4. Banks may put in place the above sys­tem with­in 30 days from the date of this circular.