As per the current notification issued by the Reserve Bank of India (RBI), the Urban Co-operative Banks (UCBs) shall not make, provide or renew any loans and advances or extend any other financial accommodation to or on behalf of their directors or their relatives, or to the firms / companies / concerns in which the directors or their relatives are interested.
It further prohibits the said entity to stand as surety/guarantor to the loans and advances or any other financial accommodation sanctioned by UCBs.
In this regard, ‘Advances’ for the purpose shall include all types of funded / working capital limits such as cash credits, overdrafts, credit cards, etc.
However, it has excluded the following categories of director-related loans from “loans and advances” for the purpose of these directions:
- Regular employee-related loans to staff directors, if any, on the Boards of UCBs;
- Normal loans, as applicable to members, to the directors on the Boards of Salary Earners’ UCBs;
- Normal employee-related loans to Managing Directors / Chief Executive Officers of UCBs;
- Loans to directors or their relatives against Government Securities, Fixed Deposits and Life Insurance Policies standing in their own name.