What changed
RBI has clarified that credit card limits granted to directors of banks are not considered 'loans or advances' under Section 20 of the Banking Regulation Act, 1949. This exemption applies only if the bank uses the same criteria for determining the credit limit as it does for its regular credit card customers.
What it means for you
Banks can now issue credit cards to their directors without violating Section 20 restrictions, as long as the credit limit is set using standard, non-discriminatory criteria. This reduces compliance burden and allows directors to access credit card facilities like other customers, but banks must ensure no preferential treatment is given.
What you must do
- Review your credit card issuance policy to ensure uniform criteria are applied for all customers, including directors.
- Document the criteria used for determining credit limits for directors to demonstrate compliance with this exemption.
- Train credit card processing teams on the new exemption and the requirement for equal treatment.
- Update internal audit checklists to verify that director credit card limits are not treated as loans or advances under Section 20.
Who it affects
All scheduled commercial banks (excluding RRBs), Bank directors who may now receive credit card facilities, Credit card operations and compliance teams
Does this exemption apply to all types of credit card facilities for directors?
Yes, the exemption covers the entire credit limit granted under a credit card facility, provided the bank uses the same criteria as for normal credit card business.
What happens if a bank gives preferential treatment to a director's credit card limit?
If the criteria differ from those applied to regular customers, the credit limit would be considered a 'loan or advance' under Section 20, and the exemption would not apply.