Overdraft facilities extended by banks to customers are governed by their Board approved credit policies in compliance of various directions issued by Reserve Bank of India (RBI) under section 21 of the Banking Regulation Act, 1949. RBI has informed that it advised all banks to put in place a well-defined Board approved loan policy keeping in view various regulatory guidelines. The loan policy shall lay down exposure limits to individual/group borrowers, documentation standards, margin, security, sectoral exposure limits, delegation of powers, maturity and pricing policies, factors taken into consideration for deciding interest rates etc. Banks consider different loan proposals based on their commercial judgment and merits of each case keeping in view the loan policies.

This was stated by Shri Jayant Sinha, Minister of State in Ministry of Finance in written reply to a question in the Lok Sabha.

Board-approved loan policy governs overdraft facilities and sets exposure, documentation, pricing and delegation rules under RBI directions. Overdraft facilities are governed by Board approved credit policies in compliance with RBI directions under the Banking Regulation Act; such loan policies must prescribe exposure limits for individual and group borrowers, documentation standards, margin and security requirements, sectoral exposure limits, delegation of powers, maturity and pricing policies, and factors for deciding interest rates, and banks consider individual proposals based on commercial judgment within that policy framework.