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Master Circular: Statutory & Other Restrictions on Loans & Advances (2007)

No longer current — withdrawn, no replacement on file yet

Source: Reserve Bank of India · RBI/2006-2007/43 · issued 02 Jul 2007 · ~2 min read

Quick answerRBI consolidated all statutory and regulatory restrictions on loans and advances as of June 30, 2007. Key prohibitions include lending against own shares, to directors, and for buy-backs. Banks must comply with updated norms on sensitive commodities, real estate, and NBFC financing.

What changed

This master circular updates the previous July 2006 version by incorporating all instructions issued up to June 30, 2007. It consolidates statutory restrictions under the Banking Regulation Act, 1949, and regulatory restrictions on lending to directors, officers, and sensitive sectors. The circular also covers restrictions on advances against shares, gold, real estate, and to NBFCs.

What it means for you

Banks must ensure all loan and advance policies align with the consolidated restrictions, especially regarding director-related lending and sector-specific caps. Non-compliance with statutory provisions like Section 20(1) can attract regulatory action. The circular serves as a single reference point for compliance, reducing ambiguity across multiple circulars.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Review and update internal loan policies to reflect all statutory and regulatory restrictions listed in the master circular.
Ensure no loans are granted against the bank's own shares or to directors/firms where directors have substantial interest, except as exempted.
Verify compliance with sector-specific restrictions on real estate, gold loans, NBFC financing, and sensitive commodities.
Train credit officers on the updated restrictions, especially those on advances to officers and their relatives.
Maintain documentation to demonstrate adherence to the circular for RBI inspections.

Who it affects

All scheduled commercial banks (excluding RRBs), Credit and loan sanctioning departments, Compliance and risk management teams, Board of directors and senior management

❓ Common questions

Regulatory timeline

Decoded by BankPulse 2026-06-19 16:08 IST
repealed_by — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
Status change: withdrawn 05 Aug 2026, 04:00 IST

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

Can a bank grant a loan to a company where one of its directors is also a director?

Generally no, unless the company is a subsidiary of the bank, a Section 25 company under the Companies Act, 1956, or a government company. Otherwise, such loans are prohibited under Section 20(1) of the Banking Regulation Act.

Are there any exemptions to the prohibition on loans to directors?

Yes, RBI may specify by general or special order that certain transactions are not considered 'loans or advances' for this purpose, based on the nature, period, and recovery prospects of the transaction.

Does this circular apply to Regional Rural Banks (RRBs)?

No, the circular explicitly excludes RRBs from its scope. It applies to all other scheduled commercial banks.

📜 This document’s life story (1 recorded event, each backed by RBI’s own words)

Repealed by RBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)

RBI’s words: “Official withdrawal register entry #2399: DBOD.No.Dir.BC.9/13.03.00/2007-08 — "Master Circular - Loans and Advances - Statutory and Other Restrictions" dated July 2, 2007”

📜 Read the original circular — full text as issued by RBI

RBI/2006-2007/43
 DBOD No. Dir. BC. 9/13.03.00/2007-08 
 July 2, 2007
 Aashadha 11, 1929(Saka) 
 All Scheduled Commercial Banks
 (Excluding RRBs) 

 Dear Sir, 

 Master Circular- Loans and Advances – Statutory and Other Restrictions 

 Please refer to the Master Circular DBOD. No. Dir. BC. 8/13.03.00/2006-07 dated July 1, 2006 consolidating the instructions/guidelines issued to banks till June 30, 2006 relating to statutory and other restrictions on Loans and Advances .The Master Circular has been suitably updated by incorporating the instructions issued up to June 30, 2007 and has been placed on the RBI website (http://www.rbi.org.in). 
 Yours faithfully 
 (P. Vijaya Bhaskar)
 Chief General Manager 
 Table of Contents 
 1.

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2006-2007/43 · issued 02 Jul 2007. The plain-English explanation above is BankPulse’s own independent summary.

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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3656&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.