Tag Archives: loans

loan against gold/ jewellery

RBI has vide its circular dated 6th August, 2020 given some leeway to the people suffering from economic crisis due to the covid pandemic by allowing banks to sanction loans against gold ornaments and jewellery upto 90% of the value of the gold ornaments and jewellery. This applies to householders, small businesses and entrepreneurs and the loan should be availed for non agricultural purpose only. The gold ornaments and jewellery should of course be pledged with the bank as a security.

This will give much needed relief to the people and small businesses suffering from immense cash crunch in the economy due to the covid pandemic. Also the gold prices have gone up so that should help the borrowers as well.

Copy of the circular is available here i.e https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11944&Mode=0

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exposure limits – loans

RBI circular dated 13th march, 2020 to urban co-operative banks on credit exposure limits to borrowers.


Limits on exposure to single and group borrowers/parties and large exposures and Revision in the target for priority sector lending – UCBs

Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies dated December 5, 2019 (extract enclosed) and the subsequent draft circular on the subject issued on the RBI website, vide Press Release 2019-2020/1541 dated December 30, 2019, for eliciting comments from the stakeholders. After examining the comments received in this regard, the final guidelines on the subject are given below.

2. Prudential Exposure Limits

2.1 In terms of our circular UBD.DS. Cir.No.44/13.05.00/2004-05 dated April 15, 2005, Primary (Urban) Co-operative Banks (UCBs) were permitted to have exposures up to 15 per cent and 40 per cent of their capital funds to a single borrower and a group of borrowers, respectively. On a review, it has been decided that, henceforth, the prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 15 per cent and 25 per cent, respectively, of their tier-I capital.

2.1.1 The revised exposure limits shall apply to all types of fresh exposures taken by UCBs. UCBs shall bring down their existing exposures which are in excess of the revised limits to within the aforesaid revised limits by March 31, 2023. However, where the existing exposure comprises only term loans and non-fund-based facilities, while no further exposure shall be taken on such borrowers, these facilities may be allowed to continue as per their respective repayment schedule / till maturity.

2.1.2 Tier-I capital as on March 31 of the preceding financial year shall be reckoned for the purpose of fixing the exposure limits. Tier-I capital for the purpose will be the same as that prescribed for computation of capital adequacy of UCBs (vide Master Circular dated July 1, 2015 on Prudential Norms on Capital Adequacy), as amended from time to time.

2.1.3 Whether borrowers/parties belong to a ‘group of connected borrowers/parties’ shall be determined based on the instructions contained at para 2.2.3 and 2.2.4 of the Master Circular DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015, as amended from time to time.

2.1.4 All other extant instructions on the subject, including the definition of exposure, will remain unchanged.

2.2 UCBs shall have at least 50 per cent of their aggregate loans and advances comprising loans of not more than ₹25 lakh or 0.2% of their tier I capital, whichever is higher, subject to a maximum of Rs.1 crore, per borrower/party. Tier I capital for this purpose shall be reckoned in the manner provided in paragraph 2.1.2 above. Notwithstanding the above, UCBs shall adhere to the revised exposure limits stipulated at para 2.1 above. UCBs which do not, at present, comply with the prescribed threshold shall be in conformity with the above requirements by March 31, 2024.

2.2.1 It is clarified that ‘loans’ for the purpose shall include all types of funded and non-funded exposures in the nature of credit.

3. Revised Priority Sector Lending Target

3.1 In terms of the circular DCBR.BPD (PCB).Cir.No.07/09.09.002/2017-18 dated May 10, 2018, the overall priority sector lending (PSL) target for UCBs stood at 40% of the adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is higher. On a review, it has been decided that the overall PSL target for UCBs shall stand increased to 75 per cent of ANBC or CEOBSE, whichever is higher.

3.1.1 UCBs shall comply with the above target by March 31, 2024 as per the following milestones:

PSL targets to be achieved by
March 31, 2021 March 31, 2022 March 31, 2023 March 31, 2024
45% of ANBC or CEOBSE, whichever is higher 50% of ANBC or CEOBSE, whichever is higher 60% of ANBC or CEOBSE, whichever is higher 75% of ANBC or CEOBSE, whichever is higher

3.1.2 The extant sub-targets under the priority sector shall remain unchanged.

4. UCBs shall prepare, with the approval of their Board, an Action Plan for compliance with the aforesaid revised exposure limits and priority sector lending targets. They are also advised to establish an appropriate mechanism to regularly monitor the progress made under the Action Plan for compliance with the above instructions.

5. A copy of this circular should be placed before the Board of Directors of the UCB in its next meeting and a confirmation thereof should be sent to the concerned Regional Office of Department of Supervision, Reserve Bank of India.

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Foreclosure charges/ Pre-payment penalty banned

RBI has vide its circular dated 7th May 2014 immediately banned the foreclosure charges/ pre-payment penalty that was being levied by banks and financial institutions on pre-payment of loans by borrowers. This will be brought into effect immediately but will cover only loans with floating rate of interest and that too only for individual borrowers. 

Not clear why RBI has left our the fixed interest rate borrowers and commercial entities who borrow monies. 

It is a case of too little, too late from RBI. 

RBI should levy a fine of a few thousand crores on all the banks and financial institutions who have been levying these charges on borrowers for all these years and reimburse to the borrowers who have been so effected. 

The copy of the circular can be found here. 





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MCA clarification on section 185 of CA 2013 qua section 372A of CA 1956

Ministry of Corporate Affairs has issued a clarification on the contentious section 185 of the Companies Act, 2013 regarding loans made, guarantees given or securities provided vide section 372A of the Companies Act, 1956. 

The gist of the clarifications are given below:

This Ministry hos received number of representations on the applicability of Section 185 of the companies Act, 2013 with reference Io loans made, guarantee given or security provided under Section 372A of the Companies Act,1956. The issue hos been examined with reference to applicability of Section 372A ol the Companies Act, 1956 vis-a-vis Section 185 of the Companies Act. 2013. Section 372A of the Companies Act, 1956, specifically exempts any loans mode, any guarantee given or security provided or any investment mode by d holding company to its wholly owned subsidiary. Whereas. Section 185 of the Companies 2013 prohibits guarantee given or any security provided by o holding company in respect of any loon token by its subsidiary company except in the ordinary course of business.

2. In order to maintain harmony with regard to applicability of Section 372A of the companies Act, 1956 till the same is repealed and Section 185 of the Companies Act, 2013 is notified, it is hereby clarified that any guarantee given or security provided by a holding company in respect of loons mode by o bonk or financial institution to its subsidiary company, exemption as provided in clause (d) of sub-section (8) of section 372A of the. companies Act, 1956 shall be applicable till section 186 of the Companies Act, 2013 is notified. This clarification will, however, be applicable to cases where loans so obtained ore exclusively utilized by the subsidiary for its principal business activities. 


The copy of the circular can be accessed here http://www.mca.gov.in/Ministry/pdf/General_Circular_3_2014.pdf

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