The Reserve Bank of India recently modified the Deendayal Antyodaya Yojana – National Rural L...
The Banking Regulation Act, 1949 has been amended by the Banking Regulation (Amendment) Act, 2020 notified for the Primary Urban Co-operative Banks (UCBs) on 29th September 2020 and deemed to have been effective from 29th June 2020. Consequently, Section 20 of the Act has become applicable to UCBs. However, the extent directions on the subject issued to UCBs have been reviewed, and the revised rules are published.
UCBs will not make, provide or renew any advances or loans or extend any other financial support to or on behalf of their directors or their relatives, or to the firms/companies/concerns in which directors or their relatives are interested (collectively known as “director related loans”). Furthermore, the directors or their relatives or the firms/companies/concerns in which the directors or their relatives are interested must also not stand as surety/guarantor to the loans and advances or any other financial accommodation sanctioned by the UCBs. ‘Advances’ for the purpose must include all types of funded/working capital limits such as cash credits, overdrafts, credit cards, etc.
The following categories of director-related loans must, however, be excluded from “loans and advances” for the purpose of these directions:
The term ‘any other financial accommodation’ must include funded and non-funded credit limits and underwritings and similar commitments, as under:
The word “relative” will have the meaning as a person shall be supposed to be a relative of another, if and only if:-
Provided that the director of a UCB or his relative will also be deemed to be interested in a company, being a subsidiary or holding company, if he or she is a director of a company, managing agent, manager, employee, or guarantor of the respective holding or subsidiary company.
Provided further that the director of a UCB will also be deemed to be interested in a company/firm if he/she holds a substantial interest in or is in control of the company/firm or a company, being the subsidiary or holding company if he/she has a substantial interest in or is in control of the respective holding or subsidiary company
Provided further that the relative of the director of a UCB must also be deemed to be excited in a company/firm if he/she is a significant shareholder or is in control of the company/firm or a company, being the subsidiary or holding company if he/she is a significant shareholder or is in control of the respective holding or subsidiary company.
The term “substantial interest” must have the same meaning as assigned to it in section 5 (ne) of the Banking Regulation Act, 1949.
The term “control” must include the right to appoint a majority of the directors or to control the policy decisions exercisable by an individual or persons acting in concert or individually,, including by virtue of their shareholding or rights of managment or agreements or voting agreements or in another manner.
The term “major shareholder” must mean a person holding 10% or more of the paid-up share capital.
UCBs must submit information pertaining to the director-related loans as at the end of each quarter (i.e., 31st March, 30th June, 30th September, and 31st December), in the format given in the Annexure to these directions, to the concerned Regional Office of Department of Supervision of Reserve Bank of India within 15 days from the end of the respective quarter. In the case of UCBs functioning under Administrator/ Person-in-Charge/Special Officers, the UCBs concerned must submit information in repect of loans and advances availed by the /Person-in-Charge/Special Officers/Administrator, including the relatives.
The directions supersede the earlier directives/instructions issued on the subject, and it will come into force immediately. The existing director-related loans sanctioned/granted by the UCBs in terms of previous directives/instructions before this circular issue, if any, may continue till their respective maturity and shall not be renewed further. A copy of a circular must be placed before the Board of Directors of your bank in its next meeting. A confirmation thereof must be sent to the concerned Regional Office of the Department of Supervision of Reserve Bank of India.
Read our article: System Based Asset Classification for Urban Co-operative Banks (UCBs)