Professional Documents
Culture Documents
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PURPOSE
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GUIDELINES
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STATUTORY RESTRICTIONS
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STATUTORY RESTRICTIONS
Advances to bank's Directors
Exemption- Loans or advances" shall not include any
transaction which the Reserve Bank may specify by
general or special order as not being a loan or advance.
They include
loans or advances against Government securities, life
insurance policies or fixed deposit
loans or advances to the Agricultural Finance
Corporation Ltd
for the purpose of purchasing furniture, car, Personal
Computer or constructing/acquiring house for personal
use, festival advance with the prior approval of RBI
call loans made by banking companies to one another
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STATUTORY RESTRICTIONS
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STATUTORY RESTRICTIONS
Restrictions on Holding Shares in Companies
Banks should not hold shares whether as pledgee,
mortgagee or absolute owner
In any company in the management of which any managing
director or manager of the bank is in any manner concerned
or interested.
of an amount exceeding 30 per cent of the paid-up share
capital of that company or 30 per cent of its own paid-up
share capital and reserves, whichever is less.
Restrictions on Credit to Companies for Buy-back
of their Securities
Companies are permitted to purchase their own shares
or other specified securities out of their
free reserves, or
securities premium account, or
the proceeds of any shares or other specified securities, 8
REGULATORY RESTRICTIONS
Granting loans and advances to relatives of
Directors
Unless sanctioned by the Board of
Directors/Management Committee, banks should not
grant loans and advances aggregating Rupees twenty
five lakhs and above to
directors (including the Chairman/Managing Director) of other
banks
any firm in which any of the directors of other banks * is
interested as a partner or guarantor
any relative other than spouse and minor / dependent
children of their own Chairmen/Managing Directors or other
Directors of their bank or other banks.
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REGULATORY RESTRICTIONS
Granting loans and advances to relatives of
Directors
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 Rupees
twenty five thousand
Casual purchase of cheques up to Rupees five thousand
at a time
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REGULATORY RESTRICTIONS
Restrictions on Grant of Financial Assistance to Industries
Producing /Consuming Ozone Depleting Substances (ODS)
As per Montreal Protocol, ODS are required to be phased out.
Banks should not extend finance for setting up of new units
consuming/producing the ODS
Restrictions on Advances against Sensitive Commodities
under Selective Credit Control (SCC)
To prevent speculative holding of essential commodities with the
help of bank credit and the resultant rise in their prices
The commodities treated as sensitive are
food grains i.e. cereals and pulses,
selected major oil seeds indigenously grown
raw cotton and kapas,
sugar/gur/khandsari,
cotton textiles
yarn and fabrics
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REGULATORY RESTRICTIONS
Restriction on payment of commission to staff
members including officers
A banking company shall not employ or continue the
employment of any person whose remuneration or part
of whose remuneration takes the form of commission
or a share in the profits of the company
Restrictions on offering incentives on any banking
products
Banks should not offer any banking products, including
online remittance schemes etc., with prizes
/lottery/free trips (in India and/or abroad), etc. or any
other incentives having an element of chance, except
inexpensive gifts costing not more than Rupees two
hundred fifty
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RESTRICTIONS ON OTHER LOANS AND
ADVANCES
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LOANS AND ADVANCES AGAINST SHARES,
DEBENTURES AND BONDS
Advances to individuals
Purpose of the Loan To meet contingencies, personal
needs, subscribing to new or rights issues or purchase
in the secondary market
Amount of advance - should not exceed the limit of
Rupees ten lakhs per individual if the securities are
held in physical form and Rupees twenty lakhs per
individual if the securities are held in dematerialised
form
Margin - Banks should maintain a minimum margin of
50 % of the market value of equity shares / convertible
debentures held in physical form and 25% if in
dematerialised form
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LOANS AND ADVANCES AGAINST SHARES,
DEBENTURES AND BONDS
Advances to Share and Stock Brokers/ Commodity
Brokers
Banks and their subsidiaries should not undertake financing
of 'Badla' transactions.
They may be provided need based overdraft facilities / line
of credit against shares and debentures held by them as
stock-in-trade
Ceiling of Rs 10 lakh/Rs 25 lakh for individuals is not
applicable and the advances would be need based
Banks may grant working capital facilities to stock brokers
registered with SEBI and who have complied with capital
adequacy norms prescribed by SEBI
A uniform margin of 50 % shall be applied on all advances /
financing of IPOs / issue of guarantees on behalf of share
and stockbrokers.
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LOANS AND ADVANCES AGAINST SHARES,
DEBENTURES AND BONDS
Bank Finance for Market Makers
Market Makers approved by stock exchange would be
eligible for grant of advances by scheduled commercial
banks
A uniform margin of 50 per cent shall be applied on all
advances / financing of IPOs / issue of guarantees on
behalf of market makers
A minimum cash margin of 25 per cent (within the
margin of 50%) shall be maintained in respect of
guarantees issued by banks for capital market
operations.
Banks may accept, as collateral for the advances to the
Market Makers, scrips other than the scrips in which
the market making operations are undertaken.
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MONEY MARKET MUTUAL FUNDS
The Banks are now guided by SEBI regulations.
However for new banks/FIs trying to enter the
MMMFs market, have to take necessary
approval from the RBI before approaching the
SEBI for clearance.
Loans/ Advances were obtained from other
banks using these fake term deposit receipts.
To avoid these practices the RBI has banned
issuances of FDRs (fixed deposit receipts) or
any other term deposit receipts.
ADVANCES TO AGENTS/INTERMEDIARIES
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The loan will be subject to capital adequacy
and other prudential requirements.
Banks should ensure end-use of gold loans
to jewellery manufacturers and adhere to
KYC guidelines.
The stand-by LC / BG shall be extended on
behalf of domestic jewellery manufacturers
and shall cover at all times the full value of
the quantity of gold borrowed by these
entities.
The bank issuing the stand-by LC / BG
should do so only after carrying out proper
credit appraisal. The bank should ensure
that adequate margin is available to it at all
times consistent with the volatility of the gold
prices.
The stand-by LC / BG facilities will be
denominated in Indian Rupees and not in
foreign currency.
Stand-by LC / BG issued by the non-
nominated banks will be subject to extant
capital adequacy and prudential norms.
LOANS AND ADVANCES TO REAL ESTATE
SECTOR
For loan proposals involving real estate, banks
should ensure that the borrowers have
obtained prior permission from government.
While the proposals could be sanctioned in
normal course, the disbursements should be
made only after the borrower has obtained
requisite clearances from the government
authorities.
LOANS AND ADVANCES TO MICRO AND SMALL
ENTERPRISES (MSES):
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LOAN SYSTEM FOR DELIVERY OF BANK CREDIT
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GUIDELINES FOR BANK FINANCE FOR PSU
DISINVESTMENTS OF GOVERNMENT OF INDIA
1. The promoters contribution towards the equity capital of a company
should come from their own resources
2. The bank should not normally grant advances to take up shares of
other companies.
3. Advances against shares were not used to enable the borrower to
acquire or retain a controlling interest in the company/companies or to
facilitate or retain inter-corporate investment..
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2. For acquisition of shares of PSU under a disinvestment program approved
by Government of India, including the secondary stage mandatory open
offer, wherever applicable and not for subsequent acquisition of the PSU
shares.
3. Adequate net worth and an excellent track record
4. Reasonable amount bank finance
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TRANSFER OF BORROWAL ACCOUNTS FROM
ONE BANK TO ANOTHER
Board approved policy with regard to takeover of
accounts from another bank
Before taking over an account, the transferee
bank should obtain necessary credit information
from the transferor bank as per the format
This would enable the transferee bank to be fully
aware of the irregularities, if any, existing in the
borrower's account(s) with the transferor bank.
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GUIDELINES ON FAIR PRACTICES CODE FOR
LENDERS
Applications for loans and their processing
- comprehensive, systematic, reasonable period of time, reason for rejection
Loan appraisal and terms/conditions
- proper assessment, convey information, written agreement
Timely changes in terms & conditions
Post disbursement supervision
- constructive, notice to borrowers, release all securities
General
- Interfering in the affairs of the borrowers, discrimination, undue harassment
- Request for transfer of borrowal account should be conveyed within 21 days
from the date of receipt of request.
Banks and financial institutions have the freedom of drafting
the Fair Practices Code and should also be put on their website
and given wide publicity.
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GUIDELINES ON RECOVERY AGENTS ENGAGED
BY BANKS
Engaged by the bank
Due diligence process
Inform the borrower the details of recovery agency
firms
Restrictions in forwarding cases to recovery
agencies
No use of uncivilized, unlawful and questionable
behaviour or recovery process
Properly trained
A certificate course for Direct Recovery Agents
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GUIDELINES ON RECOVERY AGENTS ENGAGED
BY BANKS
Legal remedies without intervention of the Courts
Re-possession clause is legally valid
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THANK YOU
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