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Article (2) Personal Loan

C 29/2011 Effective from 29/3/2011

a) Personal Loan: Is "a loan that is given to individual customers, where repayments are made out of salary and end of service indemnity and/or any other verifiable regular income from a well-defined source".

b) Personal Loan's Limit: Amount of the personal consumer loan has been set at (20) twenty times the salary or the total income of the borrower, and banks and finance companies must make sure that this limit is not exceeded.

c) Repayment Period: The repayment period for this loan must not exceed (48) months.

d) In order to ensure that the monthly installments deducted for repayment of this loan and resulting interest are kept in a reasonable proportion to the customer’s income, the deductions from his salary and/or regular income must not exceed the limits specified under Article (7) of these Regulations.

e) Loans extended to sole proprietorship firms and companies, secured by salary of the owner or salaries of the partners shall be treated the same way this loan is treated, and shall be subject to the same terms and conditions.

f) This loan shall be extended as per an application by the customer to be approved by the bank or the finance company, and it should be drafted in the manner set out in Article (12) hereof.

Clarifications and Guidelines (Notice No. 2901/2011)
  1. These regulations apply to personal facilities viz. loans, overdrafts, car loans and credit cards extended to individuals which are repayable from salary, end of service indemnity and/ or other verifiable regular income from a well defined source.
  2. It should be ensured that the borrowers’ salary and end of service benefits are properly ascertained from the employer. If the facility is partly or fully given against other income, it should be from a well defined source and its full details should be obtained.
  3. In case of borrowers with heavy personal commitments and lower disposable income or uncertain employment/ job prospects, banks may not allow facilities upto the upper limit of 20 times salary and/ or the total income, repayable within 48 months despite meeting the specified criteria.
  4. .For sound loan decisions, banks should have clear policy guidelines on issues which have direct bearing on the quality of risk and repayment of the loan.
  5. If a customer avails for a lower amount than his eligibility or there is significant increase in his income level in subsequent months due to promotion etc, banks may reassess his eligibility after proper verification. In such a case, either existing loan is enhanced or a new loan is set up (without disturbing the existing loan).
  6. If other income is main or supplementary source of repayment, it should be ensured that such income is from a known regular source, the borrower has produced documentary evidence of such income.
  7. Besides personal facilities against salary and other income as above, banks may extend loans and overdrafts against lien over fixed deposits held with them.