The Reserve Bank of India (RBI) announced on July 23 that banks can grant ‘personal loans’ of up to Rs 5 crore to directors and families of directors of other banks without seeking prior clearance from the Board and management committee.
According to the RBI, this ceiling has been increased from Rs 25 lakh previously.
Previously, RBI guidelines specified that loans of Rs25 lakh or more may only be approved with the board of directors or management committee’s permission.
According to the RBI circular issued on Friday, this would apply to all scheduled commercial banks, with the exception of regional rural banks (RRBs), small financing banks, and all local area banks.
Consumer credit, education loans, loans for the development or upgrading of immovable assets, and loans for financial asset investment are all examples of personal loans offered to individuals.
If the loan is being sanctioned to any relative other than spouse and minor or dependent children of their own chairpersons, managing director, or other directors, the RBI also stated that banks should not grant loans and advances totalling 5 crores or more unless approved by the board of directors or management committee.
Currently, if a relative of a director owns a considerable stake, which is defined as 10% of paid-up capital or Rs5 lakh, whichever is less, board/management committee approval is necessary for the award of loans to a firm.
“This places a disproportionate burden on the board/ management committee. This stipulation has been relaxed by mandating that sanction of board/ management committee would be required only when the relative is a major shareholder in a company (which is defined as holding of 10 per cent or more of paid-up share capital of five crore rupees in paid-up shares, whichever is less),” the RBI said.