Urban co-operative bank - loan to directors and their relatives
RD
(Querist) 31 October 2012
This query is : Resolved
Kindly answer the following with relevant Legal Provision or RBI Circular:
Whether a Co-operative Bank give Loan to a concern where Relative of Director is a Guarantor? Does it tantamount to violation of RBI Guidelines?
Kindly Reply ASAP.
Thanks.
ajay sethi
(Expert) 01 November 2012
Section 20(1) of the Banking Regulation Act, 1949 also lays down the restrictions on loans and advances to the directors and the firms in which they hold substantial interest.
2.1.2.2 Banks are prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956, or a Government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor.
2.2.1.4 Unless sanctioned by the Board of Directors/Management Committee, banks should also not grant loans and advances aggregating Rupees twenty five lakhs and above to -
any relative other than spouse and minor / dependent children of their own Chairmen/Managing Directors or other Directors;
any relative other than spouse and minor / dependent children of the Chairman/Managing Director or other directors of other banks *;
any firm in which any of the relatives other than spouse and minor / dependent children as mentioned in (a) & (b) above is interested as a partner or guarantor; and
any company in which any of the relatives other than spouse and minor / dependent children as mentioned in (a) & (b) above hold substantial interest or is interested as a director or as a guarantor.
* including directors of Scheduled Co-operative Banks, directors of subsidiaries/trustees of mutual funds/venture capital funds.
ajay sethi
(Expert) 01 November 2012
it would amount to violation of RBi guidelines if loan is give to concern in whcih director relative is a gurantor
RD
(Querist) 01 November 2012
Sir, thank you for your Response. But still I am confused as the Banking Regulation Act - As Applicable to Co-operative Societies - that is - Part V - does not contain such specific provision restricting a relative of a Director to become guarantor.
Kindly guide me in this matter.
Thanking You in Advance
Sankaranarayanan
(Expert) 01 November 2012
no more details need , all are given by mr sethi.
