{"id":7321,"date":"2021-08-04T09:15:27","date_gmt":"2021-08-04T09:15:27","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7321"},"modified":"2021-08-05T12:57:11","modified_gmt":"2021-08-05T12:57:11","slug":"rbi-overhauls-regulatory-restrictions-on-loans-and-advances","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/","title":{"rendered":"RBI Overhauls Regulatory Restrictions on Loans and Advances"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Recently, the RBI or the Reserve Bank of India restored the regulatory restrictions on loans and advances by traditional banks to directors of other banks &amp; related companies. The Notification regarding regulatory restrictions on loans and advances was announced by the Reserve Bank of India on July 23, 2021, which delivers for increased limits in loans and advances to be provided by banks. Scroll down to check the Notification in detail.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a7b4b2afc9\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a7b4b2afc9\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#To_whom_this_Notification_was_issued\" title=\"To whom this Notification was issued?\">To whom this Notification was issued?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#Legal_Restrictions\" title=\"Legal Restrictions\">Legal Restrictions<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#Revised_Notification_Regulatory_Restrictions_on_Loans_and_Advances\" title=\"Revised Notification: Regulatory Restrictions on Loans and Advances\">Revised Notification: Regulatory Restrictions on Loans and Advances<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#Clarification_of_Definite_Terms\" title=\"Clarification\nof Definite Terms\">Clarification\nof Definite Terms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#Requirement_for_Amendment_in_Regulatory_Restrictions_on_Loans_and_Advances\" title=\"Requirement for Amendment in Regulatory Restrictions on Loans and Advances\">Requirement for Amendment in Regulatory Restrictions on Loans and Advances<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-overhauls-regulatory-restrictions-on-loans-and-advances\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"To_whom_this_Notification_was_issued\"><\/span>To whom this Notification was issued?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nReserve Bank of India to address all scheduled traditional banks excluding\nRRBs, all small finance banks &amp; all local area banks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Legal_Restrictions\"><\/span>Legal Restrictions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>According to <strong>Section 20 of the Banking Regulation Act, 1949<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/Scripts\/NotificationUser.aspx?Id=10025&amp;Mode=0\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup>, there is an absolute prohibition on banks to enter into any promise for allowing the loan to or on behalf or any of its directors and stated other parties wherein the director is interested. The master circular on loans and advances statutory &amp; other restrictions lays down the prohibitions and limits.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Revised_Notification_Regulatory_Restrictions_on_Loans_and_Advances\"><\/span>Revised Notification: Regulatory Restrictions on Loans and Advances<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nmaster notification on regulatory restrictions on loans and advances specifies\ncompanies or persons to whom advances and loans can be extended up to a\nparticular limit with prior consent from the board. Now the revised\nNotification released by the Reserve Bank of India vide Notification has\nchanged or amended the limits for some classes of individuals. In the table\nmentioned below, we have explained the present limitations and the revised,\nimproved limits.<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Type\n  <\/strong>\n  <\/td><td>\n  <strong>Present\n  Limits (RBI Master Circular)<\/strong>\n  <\/td><td>\n  <strong>Revised\n  Limit (RBI Notification dated 23<sup>rd<\/sup> July 2021)<\/strong>\n  <\/td><\/tr><tr><td>\n  Other Directors of banks\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  Up to Rs. 5 crore for\n  personal loans (this amendment shall apply in the case of personal loans\n  only)\n  <\/td><\/tr><tr><td>\n  Companies where directors of\n  other banks are interested as guarantor or partner\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  No revision\n  <\/td><\/tr><tr><td>\n  Entities wherein other\n  directors of banks hold considerable interest or is a guarantor or director.\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  No revision\n  <\/td><\/tr><tr><td>\n  Relative (other than spouse)\n  &amp; minor or dependent children of MD\/Directors\/Chairman\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  Up to Rs. 5 crore\n  <\/td><\/tr><tr><td>\n  Relative (other than spouse)\n  &amp; minor or dependent children of MD\/Directors\/Chairman of other banks\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  Up to Rs. 5 crore\n  <\/td><\/tr><tr><td>\n  Companies wherein relative as\n  mentioned above are guarantors or partners\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  Up to Rs. 5 crore\n  <\/td><\/tr><tr><td>\n  Entities where relatives are\n  interested as director\/guarantor if he or she is a significant shareholder.\n  <\/td><td>\n  Up to Rs. 25 lakh\n  <\/td><td>\n  Up to Rs. 5 crore\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p>The Central Bank also informed that the suggestions for credit facilities of an amount less than Rs. 25 lakh or Rs. 5 crore (according to the case) to these borrowers could be sanctioned by the relevant authority in financing banks under the controls covered in such authority, but the matter should be informed to the banks.<\/p>\n\n\n\n<p class=\"text-left\"><b>Also, Read<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/rbi-extends-timeline-for-payment-aggregators\/\">RBI extends timeline for Payment Aggregators<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Clarification_of_Definite_Terms\"><\/span>Clarification\nof Definite Terms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nReserve Bank of India, in its Notification, also tells definite terms, which\ncan be helpful for good understanding. These terms are given below:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"998\" height=\"326\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-4.png\" alt=\"Clarification of Definite Terms\" class=\"wp-image-7323\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-4.png 998w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-4-300x98.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-4-768x251.png 768w\" sizes=\"(max-width: 998px) 100vw, 998px\" \/><\/figure><\/div>\n\n\n\n<ol><li><strong><em>Authority<\/em><\/strong>: It shall consist of the right to assign a majority of directors or to control the policy decisions or management practicable by an individual or persons acting individually or in performance, directly or indirectly comprising by virtue of their shareholding or <a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/shareholders-agreement\"><strong>shareholding agreements<\/strong><\/a> or management rights or voting agreements or in a different way.<\/li><li><strong><em>Major Shareholder<\/em><\/strong>: According to the Notification, major shareholder refers to an individual&#8217;s holding 10% or more of paid-up share capital of Rs. 5 crores in paid-up shares, whichever is less.<\/li><li><strong><em>Personal Loan<\/em><\/strong>: This term is taken from the circular of the RBI (Reserve Bank of India) on coordination of banking statistics. According to this Notification or circular, the meaning of personal loans is loans delivered to persons and include client credit, education loan, loans offered for enhancement of immovable assets &amp; loans prolonged for investment in financial assets.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Requirement_for_Amendment_in_Regulatory_Restrictions_on_Loans_and_Advances\"><\/span>Requirement for Amendment in Regulatory Restrictions on Loans and Advances<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The master circular on loans and advances; legal and other restrictions was released more than five years ago. Owing to the rising inflation, these limits became indistinct &amp; unclear and thus required revision. Moreover, because of the Covid-19 pandemic impact in the country, such relaxation was predicted. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Thus, with the amendment notifications of the Reserve Bank of India to the regulatory restrictions on loans and advances, the limits have been increased in the advances &amp; loans to be provided by banks. You can also check the official Notification of the Reserve Bank of India below for a good understanding. <\/p>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/NOT72DE11B78FC7714B5E872265606C29F75B.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">NOT72DE11B78FC7714B5E872265606C29F75B<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recently, the RBI or the Reserve Bank of India restored the regulatory restrictions on loans and advances by traditional banks to directors of other banks &amp; related companies. The Notification regarding regulatory restrictions on loans and advances was announced by the Reserve Bank of India on July 23, 2021, which delivers for increased limits in [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7324,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[56],"tags":[793],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7321"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=7321"}],"version-history":[{"count":16,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7321\/revisions"}],"predecessor-version":[{"id":7377,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7321\/revisions\/7377"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7324"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7321"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7321"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7321"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}