Statutory & Other Restrictions On Loans & Advances

4985 words - 20 pages


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Advances against bank's own shares:
A bank cannot grant any loans and advances on the security of its own shares.( Section 20(1) of the Banking Regulation Act, 1949)

Advances to bank's Directors :
Banks are prohibited from entering into any commitment for granting any ...view middle of the document...

(Section 19(3).

Restrictions on Credit to Companies for Buy-back of their Securities
Banks shall not provide loans to companies for buy-back of their shares/ securities. However, companies are permitted (Sec. 77A (1) of ICA 1956) to purchase their own shares or other specified securities from their free reserves, or securities premium account or proceeds of any shares of other specified securities.

Regulatory Restrictions: a) Granting loans and advances to relatives of Directors
Without prior approval of the Board or without the knowledge of the Board, no loans and advances aggregating to Rs. 25 Lakh and above should be granted to relatives of the bank's Chairman/Managing Director or other Directors or other bank’s Directors (including Chairman/Managing Director) and their relatives, including lending to directors and their relatives on reciprocal basis (Sec. 20 of B.R. Act). Term relative is explained in RBI Master Circular dt. July 2, 2012.
• Loans & advances of less than Rs.25 Lakh to these borrowers can be sanctioned at appropriate level as per delegation with suitable reporting to the Board.
The term ‘loans and advances’ will not include loans or advances against Government securities, Life insurance policies, Fixed or other deposits, Stocks and shares, Temporary overdrafts for small amounts, i.e. upto Rs. 25,000/-,Casual purchase of cheques up to Rs. 5,000 at a time, Housing loans, car advances, etc. granted to an employee of the bank The guidelines are applicable while granting loans/ advances or awarding contracts to directors of scheduled co-operative banks or their relatives and to directors of Subsidiaries/trustees of mutual funds/venture capital funds set up by them as also other banks.

B) Grant of Loans & Advances to Officers and Relatives of Senior Officers of Banks
No officer or any Committee comprising, inter alia, an officer as member shall sanction any credit facility to his/her relative but only by the next higher sanctioning authority. Credit facilities sanctioned to senior officers shall be reported to the Board.
• Credit facilities to the relatives of senior officers of the bank sanctioned by the appropriate authority should be reported to the Board.

C) Advances against Sensitive Commodities under Selective Credit Control (SCC)
• RBI, ( Section 21 & 35A of the Act), issues, from time to time, directives to all commercial banks, stipulating specific restrictions on bank advances against specified sensitive commodities viz. food grains i.e. cereals and pulses, oil seeds indigenously grown viz. groundnut, rapeseed/mustard, cottonseed, linseed and castor seed, oils thereof, vanaspati and all imported oils and vegetable oils, raw cotton and kapas, sugar/gur/khan sari, cotton textiles which include cotton yarn, man-made fibers and yarn and fabrics made out of man-made fibres and partly out of cotton yarn and partly out of man-made fibers. Presently, the following commodities are covered under...

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