Compensation of CEO/ Whole Time Directors– Loans to Directors

Section 20 of Banking Regulation Act, 1949 (B.R. Act, 1949) prohibits banks from granting any loan or advance to any of its Directors.However, the following facilities will not be considered as ‘loans and advances’ under the said provisions :

1. Loan for purchasing of car
2. Loan for purchasing of personal computer
3. Loan for purchasing of furniture
4. Loan for constructing/acquiring a house for personal use
5. Festival advance
6. Credit limit under credit card facility

Commercial banks can grant such facilities, without seeking prior approval of RBI, subject to the following conditions:

a) The loans and advances shall form part of the compensation /remuneration policy approved by the Board.

b) The guidelines on Base Rate will not be applicable on the interest charged on such loans. However, the interest rate charged on such loans cannot be lower than the rate charged on loans to the bank’s own employees.

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Based on RBI Circular dt 16/7/15.

Please visit www.rbi.org.in  for any further clarification if required…………….. Poppy