What changed
Earlier circulars (April and June 2003) had prohibited all loans and advances to directors, their relatives, and entities they are interested in. Now, RBI has carved out three exemptions: regular employee loans to staff directors, normal member loans to directors of salary earners' co-operative banks, and normal employee loans to managing directors of multi-state co-operative banks.
What it means for you
UCBs can now process certain director-related loans without violating the earlier blanket ban, but only for the specified categories. Lenders must update their internal policies to clearly distinguish exempted loans from prohibited ones and ensure compliance documentation. This relaxation does not extend to other director-related lending—tight controls remain.
What you must do
- Update board-approved loan policy to list the three exempted categories with clear eligibility criteria.
- Train credit and compliance teams to identify and document exempted director loans separately.
- Ensure all non-exempt director-related loans continue to be strictly prohibited and flagged in audits.
- Acknowledge receipt of this circular to your respective RBI Regional Office as instructed.
Who it affects
All Primary (Urban) Co-operative Banks, Staff directors on UCB boards, Directors of salary earners' co-operative banks, Managing directors of multi-state co-operative banks
Does this circular allow loans to all directors of UCBs?
No. Only three specific categories are exempt: staff directors (for employee loans), directors of salary earners' banks (for normal member loans), and managing directors of multi-state UCBs (for employee loans). All other director-related loans remain banned.
What about loans to relatives or firms of directors?
The earlier blanket prohibition on loans to relatives and firms/concerns/companies in which directors are interested continues unchanged. This circular only exempts the three categories listed.
Do we need to report these exempted loans separately?
The circular does not prescribe a specific reporting format, but banks should maintain clear internal records to demonstrate compliance. Acknowledge receipt to the Regional Office as directed.