Don't give loans to buy KVPs: RBI to banks

Upon detecting improper uses of bank loans to buy Kisan Vikas Patras (KVPs), a small savings instrument, the Reserve Bank of India has asked banks not to give loans, as the purpose of providing a secure avenue of savings to small depositors and inculcate thrift gets defeated.

"We have recently come across certain instances where banks had sanctioned loans to individuals, mostly high networth individuals (HNIs), for acquiring KVPs," the RBI said.

The HNIs were first required to bring in 10 per cent of the total face value of the proposed investment in the KVPs as margin and the remaining 90 per cent of the investment was treated as loan and funded by the bank for acquisition of the KVPs. Once the KVPs were acquired in the borrower's name, the same were pledged thereafter to the bank.

The sanction of loans as described above is not in conformity with the objectives of small savings schemes. Such schemes provide a secure avenue for savings.

The grant of loans for acquiring/investing in the KVPs does not promote fresh savings, but channelises the existing savings in the form of bank deposits into small savings instruments.

This defeats the purpose of such schemes. Meanwhile, concerned over surging inflation, the RBI said it would take all monetary measures to maintain price stability.