Governor of the Reserve Bank of India, Duvvuri Subbarao, has emphasized on the need to regulate laws on lending, prior to the commencement of business in the banking sector.

The bank will be presenting the new rules of licensing after the amendment to the act has been framed. As per Duvvuri Subbarao, “We have sent in a draft amendment to the Banking Regulation Act to the government. The government is working on it. The amendments are necessary before we can contemplate corporate entry into the banking system”.

The proposal made by Mr. Subbarao has been criticized and supported, but the plus point of the proposal is that corporate sector can bring business experience and managerial competence. The Banking Regulation Act particularly forbids banks from lending to directors on their board and to unit in which they are interested.

The law also forbids loan to relatives of directors without the prior sanction or knowledge of the board. All the directors were liable to inform about their demand for loan and were suppose to avoid discussion on their proposal with the board.

According to the new guidelines, a person who is not a member of the board and is interested in taking loan, the law does not forbid the lending.