Executive Summary:
This circular from the Reserve Bank of India (RBI), dated February 5, 2021, provides revised directions to Primary Urban Cooperative Banks (UCBs) regarding loans and advances to directors, their relatives, and related firms, following amendments to the Banking Regulation Act, 1949. It restricts UCBs from providing financial accommodations to such related parties, with a few exceptions. UCBs must report director-related loans quarterly to the RBI.
Key Points / Main Content:
* **Prohibition of Director-Related Loans:**
* UCBs are prohibited from making, providing, or renewing loans and advances (director related loans) to their directors, their relatives, or firms/companies/concerns in which they are interested.
* Directors, their relatives, or related firms/companies/concerns are prohibited from acting as surety/guarantor for loans sanctioned by UCBs.
* Advances include all types of funded working capital limits (cash credits, overdrafts, credit cards, etc.).
* **Exemptions:**
* Regular employee-related loans to staff directors.
* Normal loans to directors of Salary Earners' UCBs, as applicable to members.
* Normal employee-related loans to Managing Directors/Chief Executive Officers of UCBs.
* Loans to directors or their relatives against Government Securities, Fixed Deposits, and Life Insurance Policies in their own name.
* **Definitions:**
* 'Any other financial accommodation' includes funded and non-funded credit limits, underwritings, and similar commitments.
* The definition of 'relative' is provided, including family members and in-laws.
* The term 'interested' is defined in relation to a director's or relative's position within a firm/company/concern.
* Definitions for 'substantial interest', 'control', and 'major shareholder' are included.
* **Reporting Requirement:**
* UCBs must submit quarterly information on director-related loans to the RBI in a specified format within fifteen days from the end of each quarter (March 31, June 30, September 30, and December 31).
* UCBs functioning under Administrators/Persons-in-Charge/Special Officers must include information on loans availed by them and their relatives.
* **Supersession and Continuation:**
* These directions supersede earlier instructions on the subject and are effective immediately.
* Existing director-related loans sanctioned before this circular may continue until maturity but cannot be renewed.
* **Board Confirmation:**
* The circular must be placed before the Board of Directors, and confirmation of this must be sent to the RBI.
Impact Analysis:
* **Primary Urban Cooperative Banks (UCBs)**
* *Impact:* UCBs are now subject to stricter regulations regarding lending to directors and related parties, potentially impacting their lending practices and requiring adjustments to their loan portfolios.
* *Action Required:* UCBs must adhere to the new restrictions on director-related loans, implement processes to ensure compliance, submit quarterly reports to the RBI, and place the circular before their Board of Directors.
* **Directors, Relatives of Directors, and Related Firms/Companies/Concerns**
* *Impact:* These individuals and entities will face restrictions on their ability to obtain loans and financial accommodations from UCBs, potentially affecting their access to credit and business operations.
* *Action Required:* They need to be aware of the new restrictions and seek alternative sources of funding if necessary.
* **Reserve Bank of India (RBI)**
* *Impact:* The RBI is responsible for monitoring and enforcing the new regulations, requiring them to review quarterly reports from UCBs and take appropriate action in case of non-compliance.
* *Action Required:* The RBI needs to process and analyze the quarterly reports submitted by UCBs and ensure compliance with the new directives.
Key Entities Referenced
Primary Urban Cooperative Banks (UCBs): Financial institutions to which the circular is addressed and whose operations are being regulated.
The Banking Regulation Act, 1949: The principal Act being amended to include regulations for UCBs.
Banking Regulation Amendment Act, 2020: The amendment to the Banking Regulation Act, 1949, specifically impacting UCBs.
Section 20 of the Banking Regulation Act, 1949: Section of the principal act that became applicable to UCBs after the amendment.
Reserve Bank of India: Regulatory body issuing the circular and overseeing the UCBs.
Department of Supervision of Reserve Bank of India: Department within the Reserve Bank of India responsible for supervising UCBs.
Director related loans: Loans and advances or any other financial accommodation to or on behalf of their directors or their relatives, or to the firms companies concerns in which the directors or their relatives are interested
Mumbai, Maharashtra: Location of the Central Office of the Department of Regulation, Reserve Bank of India.
RBI/2020-21/89
DOR.CRG.CRS.Cir.No.5/13.05.000/2020-21 February 5, 2021
The Managing Director / Chief Executive Officer
All Primary (Urban) Co-operative Banks
Dear Sir / Madam,
Loans and advances to directors, their relatives, and firms / concerns in which they are
interested
Please refer to our circular BPD.Cir.50/13.05.00/2002-03 dated April 29, 2003 on the captioned
subject and subsequent instructions issued in this regard.
2. The Banking Regulation Act, 1949 (“the Act”) has been amended by the Banking Regulation
(Amendment) Act, 2020 notified for the Primary (Urban) Co-operative Banks (UCBs) on
September 29, 2020 and deemed to have been effective from June 29, 2020. Consequently,
section 20 of the principal Act has become applicable to UCBs. Keeping in view the above, the
extant directions on the subject issued to UCBs have been reviewed and the revised directions
are issued as under.
3. UCBs shall not make, provide or renew any loans and advances or extend any other financial
accommodation to or on behalf of their directors or their relatives, or to the firms / companies /
concerns in which the directors or their relatives are interested (collectively called as “director-
related loans”). Further, the directors or their relatives or the firms / companies / concerns in
which the directors or their relatives are interested shall also not stand as surety/guarantor to
the loans and advances or any other financial accommodation sanctioned by UCBs. ‘Advances’
for the purpose shall include all types of funded / working capital limits such as cash credits,
overdrafts, credit cards, etc.
4. The following categories of director-related loans shall, however, be excluded from “loans and
advances” for the purpose of these directions:
i. Regular employee-related loans to staff directors, if any, on the Boards of UCBs;
िविनयमन िवभाग, क��ीय कायार्लय, क��ीय कायार्लय भवन, 12व�/13व� मंिज़ल, शहीद भगत �संह मागर्, फोटर्, मुंबई – 400 001
Department of Regulation, Central Office, Central Office Building, 12th/13th Floor, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001
टेलीफोन/Tel No.: 22661602, 22601000 फैक्स/Fax No: 022-2270 5691
िहंदी आसान है, इसका प्रयोग बढ़ाइएii. Normal loans, as applicable to members, to the directors on the Boards of Salary
Earners' UCBs;
iii. Normal employee-related loans to Managing Directors / Chief Executive Officers of
UCBs;
iv. Loans to directors or their relatives against Government Securities, Fixed Deposits and
Life Insurance Policies standing in their own name.
Explanation: For the purpose of these directions -
i. The term 'any other financial accommodation' shall include funded and non-funded credit
limits and underwritings and similar commitments, as under:
a) The funded limits shall include loans and advances by way of bill/cheque purchase/
discounting, pre-shipment and post-shipment credit facilities and deferred payment
guarantee limits extended for any purpose including purchase of capital equipment
and acceptance limits in connection therewith sanctioned to borrowers, and
guarantees by issue of which a bank undertakes financial obligation to enable its
constituents to acquire capital assets. It shall also include investments which are in
the nature of / in lieu of credit.
b) The non-funded limits shall include letters of credit, guarantees other than those
referred to in paragraph (a) above, underwritings and similar commitments. It shall
also include off-balance sheet exposure in the form of derivatives.
ii. The word “relative” shall have the meaning as under:
A person shall be deemed to be a relative of another, if and only if:-
a) They are members of a Hindu Undivided Family; or
b) They are husband and wife; or
c) The one is related to the other (or vice-versa) in the manner indicated below:
i) Father (including step-father)
ii) Mother (including step-mother)
iii) Son (including step-son)
iv) Son’s wife
v) Daughter (including step-daughter)
vi) Daughter’s husband
vii) Brother (including step-brother)
viii) Brother’s wife
2ix) Sister (including step-sister)
x) Sister’s husband
iii. The word “interested” shall mean the director of the UCB or his relative, as the case may
be, being a director, managing agent, manager, employee, proprietor, partner,
coparcener or guarantor, as the case may be, of the firm / company / concern (including
HUF):
Provided that a director of a UCB or his relative shall also be deemed to be interested in
a company, being the subsidiary or holding company, if he/she is a director, managing
agent, manager, employee or guarantor of the respective holding or subsidiary
company:
Provided further that a director of a UCB shall also be deemed to be interested in a
company/firm if he/she holds substantial interest in or is in control of the company/firm or
in a company, being the subsidiary or holding company, if he/she holds substantial
interest in or is in control of the respective holding or subsidiary company:
Provided further that a relative of a director of a UCB shall also be deemed to be
interested in a company/firm if he/she is a major shareholder or is in control of the
company/firm or 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:
iv. The term “substantial interest” shall have the same meaning as assigned to it in section
5(ne) of the Banking Regulation Act, 1949.
v. 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.
vi. The term “major shareholder” shall mean a person holding 10% or more of the paid up
share capital.
35. UCBs shall submit information pertaining to their director-related loans as at the end of each
quarter (i.e. 31 March, 30 June, 30 September and 31 December), in the format given in the
Annex to these directions, to the concerned Regional Office of Department of Supervision of
Reserve Bank of India within fifteen days from the end of the respective quarter. In the case of
UCBs functioning under Administrator(s) / Person(s)-in-Charge / Special Officers, the UCBs
concerned should submit the information in respect of loans and advances availed by the
Administrator(s) / Person(s)-in-Charge / Special Officers, including their relatives.
6. These directions supersede the earlier directives / instructions issued on the subject and shall
come into force immediately. The existing director-related loans sanctioned/granted by UCBs in
terms of the earlier directives / instructions prior to the issue of this circular, if any, may continue
till their respective maturity and shall not be renewed further.
7. A copy of this circular should be placed before the Board of Directors of your bank in its
ensuing meeting and a confirmation thereof should be sent to the concerned Regional Office of
the Department of Supervision of Reserve Bank of India.
Yours faithfully,
(Manoranjan Mishra)
Chief General Manager
4Annex
Information in respect of Director-related Loans and Advances
Name of the bank: ___________________________________________
Position as on: ___________________________________________
Related Limits Sanctioned (₹ in lakhs)
to Type of Facility
which
Name of director Date of Nature Due
Sr.
the and Sanction and Date /
No. Non- Secured Unsecured
Borrowers nature / Funded Value of Date of
funded
of the Renewal Security Maturity
relation-
ship
1 2 3 4 5 6 7 8 9 10
Amount Outstanding (₹ in Lakhs)
Total (100% of Whether in excess
Action initiated in
Funded and 100 % of exposure
Secured Unsecured case of Overdue /
of Non-funded norms / limits
NPA Accounts
Limits) stipulated by RBI
11 12 13 14 15
Note: Different types of facilities sanctioned to a borrower should be indicated separately against column
5 and 6.
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