What changed
The personal loan threshold for directors of other banks was increased from ₹25 lakh to ₹5 crore. The limit for loans to relatives (excluding spouse, minor/dependent children) of directors was revised to ₹5 crore, requiring board or management committee approval. Loans below this threshold can be sanctioned by appropriate authority but must be reported to the board.
What it means for you
Banks now have higher headroom for personal loans to directors of other banks without board approval, reducing compliance burden for smaller loans. However, the ₹5 crore threshold for loans to certain relatives tightens scrutiny on larger exposures, requiring board oversight. This aligns with RBI's focus on governance and preventing connected lending.
What you must do
- Update internal loan sanction policies to reflect the revised ₹5 crore threshold for personal loans to directors of other banks.
- Ensure board or management committee approval is obtained for loans of ₹5 crore and above to specified relatives of directors.
- Train credit officers on the new definitions of 'personal loan', 'major shareholder', and 'control' as per the circular.
- Review existing loan portfolios to identify any exposures that now require board reporting under the revised limits.
Who it affects
Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, Local Area Banks, Credit sanctioning authorities, Board of Directors and Management Committees
What is the new threshold for personal loans to directors of other banks?
The threshold has been revised from ₹25 lakh to ₹5 crore, meaning loans up to ₹5 crore can be sanctioned without board approval, subject to existing policies.
Which relatives are covered under the revised loan restrictions?
The restrictions apply to relatives other than spouse and minor/dependent children of the bank's own directors or directors of other banks, including those involved as partners, guarantors, major shareholders, or directors in firms or companies.
What is the definition of 'major shareholder' for this circular?
A major shareholder is a person holding 10% or more of the paid-up share capital or ₹5 crore in paid-up shares, whichever is less.