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When it comes to sanctioning advances against relief bonds, banks should satisfy themselves as to the acceptability of the purpose, genuineness of the credit needs of the borrower and end-use of funds lent, the RBI has said.

Mumbai , March 2

THE Reserve Bank of India has asked urban co-operative banks (UCBs) to exercise caution while granting advances against the security of relief bonds as it has detected fake bonds in circulation.

In a circular to UCBs, the apex bank said, a few instances of fake bonds and certificates have come to its notice. ``We have come across a case where a person, reporting himself to be an agent of the bondholder, had submitted a colour xerox copy of the bond for signature verification. Such practices, intentionally or unintentionally, may lead to frauds. There is an urgent need to introduce a control mechanism to ensure that sanction of loans from different banks against the same bond is prevented,'' the circular said.

The RBI has said many banks have not got these bonds and certificates transferred in their own names before disbursal of loans. They refer the matter to the Public Debt Office of the Reserve Bank of India and specified branches of agency banks after a lapse of 2-3 years from the date of sanction of loan or after the bond has matured for repayment.

Some banks have also reported that the bonds pledged with them, but not transferred in their name, have been lost.

When it comes to sanctioning advances against relief bonds in the future, banks should satisfy themselves as to the acceptability of the purpose, genuineness of the credit needs of the borrower and end-use of funds lent, and should not be guided solely by availability of relief bonds as security, said the circular.

The rate of interest charged should be in accordance with the directives on interest rates issued by the Reserve Bank of India from time-to-time and adequate margin should be kept to cover defaults, if any, in repayment of the principal and interest at the appropriate rate.

RBI observed that there is no provision to record a lien of the lending bank against a Government security including bond ledger account. In case the lending bank would like to have the Government security as a collateral, it has to be got transferred in its name.

Relief bonds can be held by any banking company if the same are transferred in the name of bank for the limited purpose of obtaining advances against the security of such bonds. No third party loans can be sanctioned against relief bonds. As per the Government of India notification, savings bonds are not eligible for being held as security against loans.

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