RBI Raises Personal Loan Limit For Bank Directors To Rs 5 Crore

Banks can now grant personal loans of up to Rs 5 crore to directors at rival lenders as the Reserve Bank of India increased the limit from the existing Rs 25 lakh.

Proposals for credit facilities of less than Rs 5 crore to the directors may be sanctioned by the appropriate authority in the financing bank, the RBI said in a statement. The matter, however, should be reported to the board.

For borrowing worth Rs 5 crore and above, prior approval from the board or the management committee of the financing bank will be required, if the loan is being sanctioned to:

• Any relative other than spouse and minor/dependent children of their own chairpersons, managing director or other directors.

• Any relative other than spouse and minor/dependent children of chairpersons, managing director 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.

• Any firm 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 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.

• A relative other than 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.

"Since there was no prohibition, what was required was enhanced due diligence while sanctioning any credit facility for a director, their relatives or associated entities," said R Gandhi, former deputy governor at the RBI.

"The Rs 25-lakh limit was fixed several decades ago. Hence, a revision is definitely in order," he said. "Still, any facility offered by any bank to a director of any bank, his/her relatives and associated entities continue to be either approved by their board or required to be reported to their board."