The Reserve Bank of India on Friday said the restrictions pertaining to advances to bank directors as contained in the Banking Regulation Act would apply to grant of loans and advances to their spouse and minor/dependent children.
However, banks may grant loan or advance to or on behalf of spouses of their directors in cases where the spouse has his/her own independent source of income arising out of his/her employment or profession.
Standard procedures
The loan so granted should be based on standard procedures and norms for assessing the creditworthiness of the borrower.
Such facility should be extended on commercial terms.
The RBI has issued the directive on ‘loans and advances and award of contracts to directors of banks and their relatives' as it has come across an instance where these have been sanctioned at a concessional rate of interest, thereby circumventing the spirit of the restrictions contained in the Banking Regulation Act, 1949.
Keywords: advances, bank directors, loans, Banking Regulation Act, RBI, creditworthiness
