The Reserve Bank of India (RBI) has raised the limit of personal loan amount that can be granted by lenders to directors of other banks and their families at not more than ₹5 crore from ₹25 lakh. “The proposals for credit facilities of an amount less than ₹25 or ₹5 crore (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,” the RBI said in a circular.
This will apply to all scheduled commercial banks, except regional rural banks (RRBs), small finance banks and all local area banks, according to the RBI circular released on Friday. Personal loans are loans given to individuals and consist of consumer credit, education loans, loans given for the creation or enhancement of immovable assets and those given for investment in financial assets.
RBI also said that banks should not grant loans and advances aggregating ₹5 crore and above unless sanctioned by the board of directors or management committee 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.
It will also apply to relatives other than spouse and minor or dependent children of chairpersons, managing directors or other directors of other banks, including relatives who are directors of scheduled co-operative banks, directors of subsidiaries or trustees of mutual funds and venture capital funds.
This also extends to firms in which any of the relatives other than spouse and minor or dependent children of chairpersons, managing director or other directors are interested as a partner or guarantor. “Any company in which any of the relatives other than spouse and minor or dependent children of chairpersons, managing director or other directors is interested as a major shareholder or as a director or as a guarantor or is in control,” the RBI also said.
A relative other than the spouse or dependent children of the director at the bank will also be deemed to be interested in a company that is a subsidiary or a holding company, if they are a major shareholder or are in control of the respective holding or subsidiary company.