Borrowing Utilisation explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The disclosure asks a real question about where borrowed money went, and then acknowledges that money in a bank account does not carry a label.
The borrowing utilisation requirement
The Schedule III requires that where the company has not used the borrowings from banks and financial institutions for the specific purpose for which it was taken at the balance sheet date, the company shall disclose the details of where they have been used.
Note the trigger. It is not a general requirement to describe how all borrowings were applied — it arises only where the funds have not been used for the purpose stated to the lender.
It is not necessary to establish a one-to-one relationship with the amount of borrowing and its utilisation.
The reason is stated with unusual practicality: it is quite often found that the amount of borrowing obtained is deposited in the common account of the company from which subsequently the utilisation is made. In such cases, it should not be construed that the amount has not been utilised for the purpose for which it was obtained.
This is the fungibility of money. Once a term loan lands in the operating account alongside collections, deposits and other borrowings, no accounting technique can identify which rupees paid which invoice. A strict tracing requirement would be unsatisfiable for almost every company, and would generate an adverse-sounding disclosure from ordinary treasury practice.
The test substituted is a sensible one: this needs to be determined based on overall position of balance sheet at the reporting period. If a company borrowed to fund an asset and the asset is on the balance sheet, the borrowing was applied to it, whatever route the cash took.
And the counterpoint: normally, when banks or financial institutions make direct payments to the vendors or suppliers, then it becomes easier to build a nexus between the source and application of funds. Where the lender disburses straight to the supplier the money never becomes fungible, and the tracing is direct.
How the borrowing utilisation assessment works in practice
| Disbursement route | Assessment |
|---|---|
| Lender pays the vendor or supplier directly | The nexus between source and application is direct and traceable |
| Funds credited to the company's common account, then applied | Assessed on the overall position of the balance sheet; the mixing itself does not indicate diversion |
| Funds credited and the intended asset or purpose does not appear at the reporting date | The company discloses where they have been used |
The parallel disclosure on securities
The same instructions carry a related requirement for equity and debt raised from investors: where, in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not been used for the specific purpose at the Balance Sheet date, the company shall indicate by way of note how such unutilized amounts have been used or invested.
The two disclosures differ in emphasis. For borrowings, the question is where they have been used; for issue proceeds, it extends to how the unutilised amount has been used or invested — acknowledging that money raised for a purpose not yet begun will typically be parked somewhere in the meantime, and that where it is parked is itself information.
What the borrowing utilisation disclosure should contain
- Identification of the borrowings from banks and financial institutions concerned.
- The specific purpose for which they were taken.
- The details of where they have been used instead.
- An assessment grounded in the overall position of the balance sheet, not in tracing individual receipts and payments.
Common mistakes
- Reporting diversion merely because the funds passed through a common account.
- Attempting a rupee-by-rupee tracing the guidance does not require.
- Omitting the disclosure where funds were genuinely applied elsewhere.
- Confusing the borrowing utilisation disclosure with the unutilised securities issue note.