Executive Summary:
This circular from the Reserve Bank of India revises regulatory restrictions on loans and advances. It modifies the threshold for personal loans to directors of other banks and revises guidelines for loans to relatives and related firms/companies of bank directors. The circular clarifies the definitions of "personal loan," "major shareholder," and "control" for the purpose of these regulations.
Key Points / Main Content:
Revised Loan Thresholds:
* The threshold for personal loans granted to any director of other banks is revised from Rupees twenty-five lakh to Rupees five crore.
Loans to Relatives and Related Entities:
* Loans and advances aggregating Rupees five crore and above to the following require Board of Directors/Management Committee sanction:
* Relatives (other than spouse and minor dependent children) of the bank's Chairmen/Managing Directors or other Directors.
* Relatives (other than spouse and minor dependent children) of the Chairman/Managing Director or other directors of other banks.
* Firms in which the above relatives are partners or guarantors.
* Companies in which the above relatives are major shareholders, directors, guarantors, or in control.
* A relative of a director is also deemed interested in a subsidiary or holding company if he/she is a major shareholder or in control of the respective holding or subsidiary company. This includes directors of Scheduled Cooperative Banks, directors of subsidiaries/trustees of mutual funds/venture capital funds.
* Credit facilities below Rupees twenty-five lakh or Rupees five crore (as applicable) can be sanctioned by the appropriate authority but must be reported to the Board.
Explanations:
* Personal loan: Defined as per circular DBR.No.BP.BC.9908.13.100201718 dated January 04, 2018, on XBRL Returns Harmonization of Banking Statistics.
* Major shareholder: A person holding 10% or more of the paid-up share capital or five crore rupees in paid-up shares, whichever is less.
* Control: Includes the right to appoint a majority of directors or to control management or policy decisions, directly or indirectly.
Impact Analysis:
Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, and Local Area Banks:
Impact: These banks must adhere to the revised thresholds and guidelines for loans to directors, relatives, and related entities.
Action Required: Banks must update their lending policies and procedures to reflect the changes outlined in the circular and ensure compliance with the revised regulations.
Boards of Directors/Management Committees:
Impact: They are responsible for sanctioning loans and advances above Rupees five crore to related parties.
Action Required: Establish and enforce robust review and approval processes for loans exceeding the specified threshold.
Directors and their Relatives:
Impact: The circular impacts the eligibility criteria and approval process for loans availed by directors and their relatives from banks.
Action Required: Understand the revised regulations and disclose any relevant relationships or interests to the lending bank.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which issued the circular.
All Scheduled Commercial Banks excluding RRBs: Refers to the commercial banks to which this circular applies, excluding Regional Rural Banks.
All Small Finance Banks: Refers to the Small Finance Banks to which this circular applies.
All Local Area Banks: Refers to the Local Area Banks to which this circular applies.
Master Circular on Loans and Advances Statutory and Other Restrictions dated July 01, 2015: A previously issued circular that this notification refers to and revises.
Board of Directors: The governing body of a bank responsible for sanctioning loans and advances exceeding a certain threshold.
Mumbai, Maharashtra: Location of the Central Office of the Department of Regulation, Reserve Bank of India.
Manoranjan Mishra: Chief General Manager at Reserve Bank of India, the signatory of the circular.
भारतीय �रज़वर् ब�क
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/2021-22/72
DOR.CRE.REC.No.33/13.03.00/2021-22 July 23, 2021
All Scheduled Commercial Banks (excluding RRBs)
All Small Finance Banks
All Local Area Banks
Madam / Dear Sir,
Loans and Advances – Regulatory Restrictions
Please refer to paragraphs 2.2.1.2, 2.2.1.4 and paragraph 2.2.1.5 of Master Circular on Loans
and Advances - Statutory and Other Restrictions dated July 01, 2015.
2. On a review, it has been decided that
i) For personal loans granted to any director of other banks, the threshold of Rupees twenty-
five lakh, as mentioned in para 2.2.1.2, stands revised to Rupees five crore.
ii) Paragraph 2.2.1.4 has been revised as under –
Unless sanctioned by the Board of Directors/Management Committee, banks should not
grant loans and advances aggregating Rupees five crore and above to -
(a) any relative other than spouse (spouse as specified in para 2.2.1.3 above) and
minor / dependent children of their own Chairmen/Managing Directors or other
Directors;
(b) any relative other than spouse (spouse as specified in para 2.2.1.3 above) and
minor / dependent children of the Chairman/Managing Director or other directors of
other banks*;
(c) any firm in which any of the relatives other than spouse (spouse as specified in
para 2.2.1.3 above) and minor / dependent children as mentioned in (a) & (b) above is
interested as a partner or guarantor; and
(d) any company in which any of the relatives other than spouse (spouse as specified
in para 2.2.1.3 above) and minor / dependent children as mentioned in (a) & (b) above
is interested as a major shareholder or as a director or as a guarantor or is in control.
िविनयमन िवभाग, क��ीय कायार्लय, 2री मंिज़ल, मुख्य कायालर् य भवन, शहीद भगत �संह माग,र् फोटर्, मुंबई-400 001
टेलीफोन:+91-22-22709038, ईमेल: cgmicdor@rbi.org.in
Department of Regulation, Central Office, 2nd Floor, Main Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001
Tel No: +91-22-22709038, Email : cgmicdor@rbi.org.in
�हंदी आसान ह,ै इसका �योग बढाइये।Provided that a relative of a director shall also be deemed to be interested in a
company, being the subsidiary or holding company, if he/she is a major shareholder
or is in control of the respective holding or subsidiary company.
*including directors of Scheduled Co-operative Banks, directors of
subsidiaries/trustees of mutual funds/venture capital funds.
iii) Paragraph 2.2.1.5 has been revised as under -
The proposals for credit facilities of an amount less than Rupees twenty-five lakh or
Rupees five crores (as the case may be) to these borrowers may be sanctioned by the
appropriate authority in the financing bank under powers vested in such authority, but
the matter should be reported to the Board.
Explanation : For the purpose of this circular:
i) The term “personal loan” shall have the meaning assigned to it in the circular
DBR.No.BP.BC.99/08.13.100/2017-18 dated January 04, 2018 on XBRL Returns
– Harmonization of Banking Statistics.
ii) The term “major shareholder” shall mean a person holding 10% or more of the
paid-up share capital or five crore rupees in paid-up shares, whichever is less.
iii) The term “control” shall include the right to appoint majority of the directors or to
control the management or policy decisions exercisable by a person or persons
acting individually or in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in another manner.
Yours faithfully,
(Manoranjan Mishra)
Chief General Manager