RBI Allowed Loan of up to Rs 5 Crore to Other Bank’s Directors Without Board Approval

After 26 years, the Reserve Bank of India (RBI) Has amended the regulatory restrictions on Personal loans and advances that are granted to

•Bank directors and their relatives.

RBI has increased the threshold of ‘personal Loans’ that could be granted to any directors And their relatives of other banks to Rs 5 Crore from Rs 25 lakh (which was fixed by RBI in 1996).

•The revised threshold regulations were

Applicable only for the personal loans of the Directors (not for business loans), whereas The limit of Rs 25 lakh was allowed to Continue for business loans.

Regulations under Lending to directors and Their relatives:

i.As per the revised regulation, the banks no need to get approval from the board of Directors/Management Committee to grant Loans above Rs 5 crore to the spouses and Minor/dependent children of the Chairmen, Managing Directors (MD) or other Directors of Their own bank and other banks.

ii.But, the banks need to get approval from the board of Directors/ Management Committee to grant loans above Rs 5 crore to the relatives of the directors, major shareholders of the bank, and partner or guarantor of the bank.

•A shareholder to needs to hold 10 percent or More of the paid-up share capital/ Rs 5 crore In paid-up shares, whichever is less in the Bank.

ii.RBI also allowed banks to sanction loans to directors and their relatives for an amount less than Rs 5 crores (earlier it was Rs 25 lakh) through its appropriate authority (without board approval) under powers vested with it (but need to report that to the Board).

Note – Personal loans refer to loans given to Individuals and it includes consumer credit, Education loans, loans for creation/ Enhancement of immovable assets (eg. Housing) And loans for investment in financial assets (shares, debentures, etc).

About Reserve Bank of India (RBI):

Establishment 1st April 1935

Headquarters– Mumbai, Maharashtra

Governor– Shaktikanta Das

Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar

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