The Reserve Bank of India (RBI) has found instances of banks flouting the regulator’s norms when it comes to lending to government-owned entities and has directed them to come out with a comprehensive report on the status of the compliance within three months. 

"We have come across instances where banks have not been strictly complying with our extant instructions on assessment of commercial viability, ascertainment of revenue streams for debt servicing obligations and monitoring of end use of funds in respect of their financing of infrastructure/ housing projects of government-owned entities," the RBI said in a notification on Tuesday.

RBI said that banks and financial institutions have also been found to have violated the regulator’s instructions that allow lenders to provide term loans only to corporate bodies for projects undertaken by government-owned entities.

The norm, RBI said on Tuesday, also states that due diligence should be carried out on viability and bankability of the projects to ensure that revenue stream from the project is sufficient to take care of the debt servicing obligations.

Banks are required to ensure that the repayment or servicing of debt is not from budgetary resources of the borrower. 

"It is reiterated that banks are required to follow these instructions in letter and spirit," the RBI circular said. 

The RBI directed banks to conduct a review and place before their boards a comprehensive report on the status of compliance with the instructions within three months from the date of this circular.