we have a past due loan customer - commercial loan.
loan officer wants to place a hold on the deposit account so that he can stop any attempt for borrower to use funds for anything other than running the business.
anyone ever run across this?

What does your Loan Agreement and Deposit Agreement say? Your second sentence is interesting related to "anything other than running the business" - any transactions processed through the deposit account should be related to the business if it is a business account.

I did run across this in the Navy Federal Credit Union $28.5 million UDAAP citation when they restricted internet banking and debit card service for delinquent loans.

https://www.consumerfinance.gov/about-us...ection-actions/

If the bank has an offset right, either use it or not, but holding the funds can blow up in your face. As Brian points out, a huge organization (the largest credit union in the world) got zapped for doing it as part of its normal practices. But even if you only do it once in a while the bank can end up on the wrong end of a wrongful dishonor suit (which can get very expensive) if it refuses payment of a check on the account.

I wonder if anyone has ever calculated how much money banks save by not providing even basic training to loan officers...

Probably less than they lose through their incompetence lack of training.