Banking · RBI Guidelines and Loan Misutilization
A corporate borrower is found to be using funds sanctioned for 'Working Capital' to purchase a piece of land in the name of a subsidiary company. How should the bank operationally categorize this event according to RBI guidelines?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1This is a legitimate business use since a warehouse is needed for operations.
- 2This is 'Diversion of Funds' because the credit was used for a purpose other than what was sanctioned.✓
- 3This is 'Siphoning of Funds' because the money was moved to a subsidiary.
- 4The bank should increase the limit to cover the cost of the land as a goodwill gesture.
Correct answer
This is 'Diversion of Funds' because the credit was used for a purpose other than what was sanctioned.
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