Reserve Bank of India issued a notification regarding loans and advances and its regulatory instructions on 23/07/2021[1] to all scheduled commercial banks (excluding RRBs), all financial banks, and all local area banks.
The notification directs to refer to paragraphs 2.2.1.2, 2.2.1.4, and 2.2.1.5 of the master circular on loans and advances and its statutory and other restrictions issued on 1/07/2015[2]. after reviewing It has been decided that 2.2.1.2 is to be revised and The threshold that has been set by at which states that banks should not grant loans and advances for a personal loan granted to any director or other banks has been revised to Rupees 5 crores from rupees 25 lakhs.
It is stated in the notification that paragraph 2.2.1.4 is revised as well and now it states that the bank should not grant loans and advances aggregating rupees 5 crores and above (which before read as Rupees 25 lakhs and above), unless sanctioned by the board of directors our management committee, to Any relatives not including the spouse As specified in the paragraph 2.2.1.3 and dependent or minor children Of their own managing directors or chairmen Or other directors; any relatives not including spouse as specified in paragraph 2.2.1.3 and dependent or minor children of the managing director or chairman or other directors of the banks which includes directors of scheduled cooperative banks, Trustees of mutual funds or venture capital funds or directors of subsidiaries. Clause (c) states that Banks Shouldn’t grant loans and advances aggregating rupees 5 crores and above to Any firm in which any of the relatives not including the spouse as specified in paragraph 2.2.1.3 and dependent or minor children as mentioned in clause (a) and clause (b) above is interested as guarantor or a partner unless sanctioned by the management committee or board of directors. Clause (d) states that banks Should not grant loans and advance aggregating rupees 5 crores and above to any company in which any relatives not including spouse as specified in paragraph 2.2.1.3 and Dependent or minor children as mentioned in clauses (a) and (b) is Interested as a guarantor, director or a major shareholder or is in control unless sanctioned by the management committee or the board of directors. The proviso of the notification states that The relative of the director shall be deemed to be interested in a company, being a holding company or a subsidiary company, if the relative is a major shareholder or is in control of the respective subsidiary company or the holding company.
The notification issued has revised paragraph 2.2.1.5 with states that Credit facilities proposals of an of amount less than Rupees 5 crores or 25 lakhs whichever the case may be to the borrowers is to be sanctioned by appropriate authority in the financing bank as per the power vested in them, however, the matter of sanctioning needs to be reported to the board.
The notification has provided an explanation for this circular and the term personal loan has been assigned the meaning as per the circular dated January 4th, 2018[3] on XBRL returns – harmonizing of bank statistics, the term major shareholder has the meaning that a person holding 10% or more of the paid-up share capital of Rupees 5 crores in paid-up shares or whichever is less. The notification has also provided the meaning of the term control shall include the right to appoint the majority of the directors, to make policy decisions exercisable by a person or persons acting individually or in concert or to control the management directly or indirectly which shall include their shareholding or management rights or Voting agreements or shareholder’s agreement or in another manner.
[1]RBI/2021-22/72 DOR.CRE.REC. No.33/13.03.00/2021-22
[2]RBI/2015-16/95 DBR.No. Dir.BC.10/13.03.00/2015-16
[3] RBI/2017-18/117 DBR.No.BP.BC.99/08.13.100/2017-18
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