The extant policy guidelines exempting the above mentioned loans and advances from applicability of Section 20 of Banking Regulation Act, 1949 required banks to approach RBI for prior approval, except in case of loans granted to a Director who was an employee of the bank immediately prior to his/her appointment as a Director.
a) The loans and advances shall form part of the compensation /remuneration policy approved by the Board of Directors or any committee of the Board to which powers have been delegated or the Appointments Committee, as the case may be.
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.
3. The terms and conditions of the loans granted to the Chief Executive Officer / Whole Time Directors which are currently outstanding may, at the banks’ discretion, be reviewed in the light of the above guidelines in order to address transition issues.
4. Banks should note that in view of the prohibition under Section 20 of the BR Act, 1949, apart from the types of loans mentioned in paragraph 1 of this circular, no other loan can be sanctioned to Directors.
5. In view of above, the instructions issued vide the circulars DBOD. No. Leg. BC. 71 /C.235-72 dated August 10, 1972, DBOD.No.Leg.B.C.108/C.235C-74 dated October 24, 1974, DBOD .No .Leg .BC .96 /C.235.C-78 dated July 25, 1978, DBOD .No. BC. 11/08.95.005/98-99 dated February 15, 1999, DBOD.No.BC.26/08.95.005/99 dated April 1, 1999 and DBOD. No. Leg.BC.81/09.11.013/2005-06 dated April 20, 2006 stand superseded.