What changed
RBI issued a circular on February 23, 2007, requiring NBFC-ND-SI to examine their financial exposures to large borrowers for foodgrain procurement. The directive aims to prevent misuse of bank finance for hoarding foodgrains. NBFCs must submit a comprehensive report by March 10, 2007.
What it means for you
NBFCs must proactively monitor large borrower accounts to ensure funds are not diverted for hoarding foodgrains, which could distort markets. This adds compliance burden but aligns with RBI's broader goal of curbing speculative hoarding. Lenders need to strengthen internal audit and reporting mechanisms.
What you must do
- Scrutinize all large exposures to borrowers involved in foodgrain procurement.
- Verify that funds have not been diverted for hoarding purposes.
- Prepare and submit a comprehensive report to RBI by March 10, 2007.
- Enhance monitoring systems to detect potential diversion of bank finance.
Who it affects
Systemically important non-deposit taking NBFCs (asset size ≥ ₹100 crore), Large borrowers of NBFCs involved in foodgrain procurement, RBI supervisory teams
Which NBFCs are covered by this circular?
All systemically important non-deposit taking NBFCs with asset size of ₹100 crore and above.
What is the deadline for the report?
The comprehensive report must be submitted to RBI by March 10, 2007.
What action should NBFCs take if they find diversion?
The circular does not specify penalties but expects NBFCs to confirm no diversion; any findings should be reported in the comprehensive report.