RBI relaxes norms for banks’ equity investments, loans to CEOs, directors

The RBI said the equity investments done without prior approval would need to be less than 10 per cent of the paid-up capital of the company, or less than one-fifth of the capital if including subsidiaries or joint ventures.

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“To give more operational freedom and flexibility in decision making, it is advised that banks which have CRAR of 10 per cent or more and have also made net profit as of March 31 of the previous year need not approach the RBI for prior approval for equity investments (in financial services companies),” it said in a circular.

While making such investments banks will have to adhere to other conditions, which include limit on holding in investee company. Earlier banks were required to get a prior approval of the RBI for such investments which are subject to prudential limits.

Under Section 20 of Banking Regulation Act, banks cannot grant any loan or advance to any of its directors. It said the loans and advances should 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. “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,” it said.