State the General Limitations of Credit Limit as Mentioned in Banking Companies Act, 1991

The Bank Company Act, 1991, imposed some restrictions on the credit limit. While granting loans and advances, schedule bank should keep these limitations in consideration. Have a look at the limits mentioned below:

(a) A bank can’t grant more than 25% of its capital as credit (15% funded credit and 10% non-funded) to a single customer or company.

(b) A bank can’t invest more than 25% of its own paid-up capital in the share market.

(c) A bank can’t grant loans and advances to the directors or to their relatives without prior approval of Bangladesh Bank.

(d) If a single loan exceeds 10% of a bank’s capital fund, then it is called Large Loan. The bank must report such loan to Bangladesh Bank. The bank should closely monitor these types of loans.

(e) A bank can’t exceed the limit of large loans set time to time by Bangladesh Bank.

(f) The bank must follow the ratio to be maintained between the total amount of an advance and loans of a small amount or of other kinds.

(g) Bangladesh Bank may set the sectors in which loans and advances may or may not be given. The scheduled bank must follow it.

(h) Bank must follow the limit of interest on secured loans and advances, set by Bangladesh Bank.

(i) Bangladesh Bank may set the interest rate to be charged on advances. 96th BPE, 8(b)