Connected Lending (CL)

RBI’s move to consolidate the scattered laws on connected lending is welcome.

CL refers to persons who are in the position to control the decision of the lender.
CL is the extension of credit to individuals or firms connected through ownership or the ability to exert control, whether direct or indirect.
CL refers to cases where the director of a bank borrows from the same bank and can have some influence.

Examples of connected parties include a firm’s parent, major shareholders, subsidiaries, affiliated companies, directors, and executive officers.

Firms are also connected where they are controlled by the same family or group.
CL means loans extended by a bank to its owners or managers and to their related businesses on terms softer than the market-determined terms.
CL or lending to persons who are in a position to control or influence the decision of a lender can be of concern.

Source:

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