MUMBAI The Reserve Bank of India (RBI) has asked banks to make provisions for the entire amount of loans extended to an entity, in case fraud is detected.
In a circular issued on Monday, the RBI said that banks will, however, be allowed to adjust the financial collateral applicable under Basel 3 rules while providing for such accounts.
The central bank said lenders will be allowed to spread the provisioning for such fraudulent accounts over no longer than four quarters.
The rules come at a time when there have been local media reports about the discrepancy in food grain stockpiles purchased through bank loans by the Punjab state government, leading to speculation that the loans may go bad.
(Reporting by Suvashree Choudhury, editing by Larry King)
This story has not been edited by Firstpost staff and is generated by auto-feed.