Diligence reports — mandated by RBI in 2008 for consortium lending by banks — are in for a makeover if the central bank accepts an ICSI task force report on this subject.
In an effort to ensure that the due diligence mechanism is updated, stays relevant, and is in sync with contemporary views and expectations, the Institute of Company Secretaries of India (ICSI) had constituted a specialised task force comprising eminent experts to thoroughly review the due diligence mechanism and the accompanying format of Diligence Report for Banks.
The report of the task force was released by its Chairman B.P.Vijayendra, Principal Chief General Manager (Retd), RBI, and handed to N.S. Vishwanathan, Deputy Governor of RBI, at an event in Mumbai recently, sources said.
A review of the diligence mechanism — initially put in place in 2008 — was warranted in the wake of multifarious regulatory developments in recent years. The new Companies Act 2013 also had several far reaching provisions that impacted the dilgence mechanism and also the format of diligence reports for banks.
Although the RBI had mandated diligence reports in 2008, banks have been hesitant adopters of this concept. Initially, many banks’ chief executives even mocked the concept, contending it was an “impediment to growth”. In fact, the banks asked their borrower-customers to obtain the reports as against RBI mandating banks to obtain the diligence reports. in all, the story so far as regards ‘dilgence reports’ for consortium lending/ multiple banking arrangements has been that of “weak implementation”, thereby debilitating the best of intentions.
However, with Prime Minister Narendra Modi himself recently flagging (at FICCI AGM) the issue of lack of diligence among banks in their lending operations, the review of diligence mechanism and the need to have a contemporaneous diligence report format has gained currency.
The review of the diligence mechanism is being pursued at a time when public sector banks are going through turmoil on the NPA management front.
At the Mumbai event, Vishwanathan, in his address, is understood to have emphasised the significance of the diligence report in curbing the level of NPAs in the country and more fruitful utilisation of banks’ funds in the growth and development of the economy.