“On an examination of the issues, it was felt that the threshold of Rs 25 lakh which was fixed way back in 1996, needed an upward revision to reflect the increase in general prices since that time, encourage professionals with expertise to join the boards and reduce the cases requiring approval at the board & management committee level without diluting the regulatory intent, accordingly, it has been decided to raise the threshold to Rs 5 crore,” the RBI said in a statement.
Considering the sensitivity of the issue and to ensure that the directors continue to carry out their functions without being influenced, the increased threshold will only to applicable to personal loans for directors of other banks while the limit of Rs 25 lakh will continue to apply for business loans, the regulator noted.
The RBI also relaxed rules for grant of loans to companies where relatives of bankers are directors. The sanction of board or management committee would be required only when the relative is a major shareholder in a company (which is defined as holding of 10% or more of paid-up share capital or five crore rupees in paid up shares, whichever is less).
“Currently, sanction by the board and management committee for grant of loans to a company is required, where the relative of a director holds substantial interest which is defined as 10% of paid-up capital or Rs 5 lakh, whichever is less,” the RBI said. “This places a disproportionate burden on the board/ management committee.”