State-run banks have been asked to conduct due diligence of their own on the company or projects it intends to lend instead of the existing practice of relying on lead banks.
Union finance ministry asked state-run banks that sanctions loan to sign on the dotted line only when they are satisfied with the appraisal.
The suggestion from finance ministry comes while stressed loans in the books of state-run banks reaches doubled digits.
The gross non-performing assets of public sector banks were 3.8 percent and restructured advances were 7.1 percent of the total loan book for the fiscal year ending 2013, an estimate by rating company Icra shows.
Small to mid-sized banks, which do not have appraisal skills, say that they participate in the consortium mainly with the comfort that lead banks would also retain a slice of the loan on their books.
Further, the ministry wants these banks to monitor the end use of funds to prevent any diversion or misuse of loans. At present, small and mid-sized banks depend on the due diligence done by lead banks.
The finance ministry has said that banks should do their independent assessment of the project rather than blindly follow the proposal given by lead banks.
Major banks like the State Bank of India, ICICI Bank or IDBI Bank were appointed as lead banks by large corporates.