Master Circular: Loans & Advances – Statutory & Other Restrictions (2011)

What changed

This master circular replaces the July 1, 2010 version by incorporating all instructions issued up to June 30, 2011. It consolidates updates on statutory restrictions (e.g., advances against bank's own shares, director loans) and regulatory restrictions (e.g., loans to relatives of directors, ODS industries, sensitive commodities). New sections include guidelines on fair practices code for lenders and recovery agents, plus annexes listing controlled substances and nominated gold import banks.

What it means for you

Banks must ensure all loan and advance policies comply with the updated consolidated restrictions, particularly on director-related lending and share-backed advances. The circular reinforces RBI's stance on prudent lending, requiring banks to avoid incentives on banking products and restrict loans to sensitive sectors. Lenders should review their internal guidelines to align with the latest statutory and regulatory requirements.

What banks were required to do at the time

• Review and update your bank's loan policy manual to reflect all restrictions in this master circular, especially sections 2.1-2.4.
• Ensure compliance with restrictions on advances to directors, relatives, and officers as per Banking Regulation Act, 1949.
• Verify that lending against shares, debentures, and sensitive commodities adheres to the updated selective credit control norms.
• Train credit officers on the fair practices code and recovery agent guidelines to avoid regulatory action.
• Maintain records of all circulars consolidated (Annex 5) for audit and inspection readiness.

Who it affects

All scheduled commercial banks (excluding RRBs), Credit and risk management departments, Loan officers handling director-related or share-backed advances, Compliance and audit teams, Recovery agents and third-party service providers