In respect of loans and advances, the detailed accounts of which are kept by him, the Accountant General should report without delay any default in payment either of principal or of interest to the authority which sanctioned the loan or advance. If that authority enforces any penal interest upon the overdue instalments of interest or principal and interest or if penal interest is recoverable on overdue instalments of Principal/Interest under the rules and orders issued by that authority it shall be the duty of the Accountant General to watch its recovery.

In the present day context of the huge loans granted to State Governments, Statutory Corporations etc., Government Companies, Quasi-public bodies and private institutions for development and other purposes, it has become an important function of the Accountant General not only to watch the fulfillment of the various conditions on which the loans are sanctioned, but also to ascertain that the loans are utilized for the purposes and on the objects for which they are sanctioned.