RBI orders PSU banks to stop lending for unprofitable Kerala govt projects


Thiruvananthapuram: The Reserve Bank of India (RBI) has strictly directed the public sector banks to stop lending to Kerala government’s projects which do not generate revenue.

The strict order came on June 13 as the banks did not follow the initial directive given to them in April. With this, many entities under the State Government will have to face obstacles in availing of loans. Many projects would also be derailed. However, the directive will not affect the loans for Kerala Infrastructure Investment Fund Board (KIIFB) as of now.

Hereafter, the banks would lend only to the business models which can be implemented using the loan and repays using the revenue generated thereby. The RBI has directed against lending money for building construction to government, quasi-government and local self-government institutions.

The corporates formed as per Company act under the Government can be provided with loans, after ensuring that they operate in a profitable manner. It should be ensured that the lending is for the remaining amount besides the Government’s funding for the project. Also, the repayment should not be made using the Government’s money, but from the revenue generated from the project itself.

Housing projects to be hit

RBI’s decision will mainly affect the developmental and housing projects. Entities such as the Kerala Police Housing and Construction  Corporation get loans to build quarters and houses for policemen. Such loans are usually repaid using the funds allocated by the Government as a budget allocation.

As per the new RBI directive, loans will not be given to such projects wherein the repayments are from budget allocations.

RBI has asked the banks to file a report within three months after examining whether the loans were approved considering the norms set by it so far.

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