Bangladesh Bank yesterday asked all scheduled banks to strengthen monitoring of their disbursed loans with a view to ensuring the intended use of funds.

Stern actions will be taken against the bank officials who are involved in sanction, disbursement and monitoring of loans if they show any negligence in carrying out their responsibilities. The central bank made the call in a circular sent to the managing directors of the banks.

The banking watchdog came up with a same instruction in March last year, but majority of the banks did not abide by the order, contributing to a sharp rise in default loans, a BB official told The Daily Star yesterday.

Default loans rose to Tk 88,589 crore in March, from Tk 74,303 crore in December 2017, according to data from the BB.

The previous directive became fruitless as it had failed to take punitive measures against the corrupt bankers in many cases, the BB official said.

Some unscrupulous people frequently divert loans to the sectors, which are not stated in their credit proposal, he said. The Credit Risk Management Guidelines issued by the BB clearly depicted what are the responsibilities of banks starting from the selection of borrowers to the monitoring of disbursed loans.

There will be no diversion of loans from the authorised sectors if the guidelines are followed properly, according to the latest BB

circular. It also added: 'It's not possible to ensure the use of disbursed loans properly if the board of directors, the credit committee and the officials concerned don't cany out their responsibility."

The central bank also asked banks not to release an instalment of a project loan if the preceding one is not used properly by the borrower.