Statutory & Other Restrictions on Loans & Advances Essay
BANKING & FINANCIAL SERVICES TERMPAPER
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STATUTORY & OTHER RESTRICTIONS ON LOANS & ADVANCES
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 loans or advances to or on behalf of any of its …show more content…
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