As part of efforts to enhance capability of its members in preparing diligence reports for submission to consortium/multiple lenders, the Institute of Company Secretaries of India has decided to launch a revised guidance note.

The revised note will factor in developments since April 2009, when such a guidance note was issued for the first time, S. N. Ananthasubramanian, President, ICSI, told Business Line.

In September 2008, the Reserve Bank of India had advised commercial banks (excluding regional rural banks and local area banks) to obtain regular certification (diligence report) from professionals, as regards compliance of various statutory prescriptions.

The diligence report sought to be issued by company secretaries in practice was seen to give a high level of comfort to banks entering consortium lending/multiple banking arrangements.

INFO BACK-UP

It was intended to tackle information asymmetry in banks and strengthen their information back-up as regards borrowers enjoying credit facilities from multiple banks.

But the institute now feels that the concept of diligence report is being given the cold shoulder despite RBI circulars mandating such reports.

“Diligence reports have not gained enough currency,” ruesAnanthasubramanian.

The revised version of the guidance note will factor in changes in laws, including the new Companies Act, it is learnt.

Rather than ensuring implementation of existing RBI prescriptions, the Finance Ministry is now asking public sector banks to do their own due diligence on loan proposals instead of relying excessively on the appraisals done by lead banks.

Banks have been told to independently monitor the end use of funds to prevent misuse of funds.

In consortium lending, small- and mid-size banks have, till now, often depended on the due diligence done by lead banks. (The Hindu)