RBI eases norms for loans given by banks to directors of other banks

The Reserve Bank of India (RBI) on Friday said banks without their boards' approval can sanction personal loans up to Rs 5 crore to directors of other banks.

The earlier limit was Rs 25 lakh.

"On a review, it has been decided that... for personal loans granted to any director of other banks, the threshold of Rupees twenty-five lakh... stands revised to Rupees five crore," RBI said in a notification.

Unless sanctioned by the board of directors/ management committee, banks should not grant loans and advances aggregating Rs 5 crore and above to any relative other than spouse and minor/ dependent children of their own Chairmen/ Managing Directors or other directors.

According to the notification, proposals for credit facilities of an amount less than Rs 25 lakh or Rs 5 crore (as the case may be) to such borrowers may be sanctioned by the appropriate authority in the financing bank but the matter should be reported to the board.

In July 2015, restrictions were imposed on loans to directors/ relatives of directors of banks. In addition to statutory restriction on lending to their own directors by banks, RBI had mandated that loans aggregating Rs 25 lakh or above can be sanctioned only with the approval of the board of directors/ management committee.

Currently, sanction by the board/management committee for grant of loans to a company is required, where the relative of a director holds substantial interest which is defined as 10 per cent of paid-up capital or Rs 5 lakh, whichever is less.