Statutory & Other Restrictions on Loans & Advances Essay

4991 Words Nov 15th, 2014 20 Pages
STATUTORY & OTHER RESTRICTIONS ON LOANS & ADVANCES
BANKING & FINANCIAL SERVICES TERMPAPER

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2013
12/11/2013

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
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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

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