Master Circular - Exposure Norms and Statutory / Other Restrictions - UCBs

RBI/2025-26/19 DoR.CRE.REC.14/07.10.002/2025-26 April 01, 2025 All Primary (Urban) Co-operative Banks Madam / Dear Sir, Master Circular - Exposure Norms and Statutory / Other Restrictions - UCBs Please refer to RBI Master Circular DoR.CRE.REC.71/07.10.002/2023-24 dated January 16, 2024 on the captioned subject consolidating the instructions / guidelines issued to UCBs till January 15, 2024. Attached is the revised Master Circular , updated to reflect all instructions issued upto March 31, 2025 on the above matter, as listed in the Annex . It may be noted that this Master Circular only consolidates all instructions on the above matter issued up to March 31, 2025 and does not contain any new instructions/guidelines. Yours faithfully, (Vaibhav Chaturvedi) Chief General Manager Encl: As above Master Circular on Exposure Norms and Statutory / Other Restrictions-UCBs Contents

1. General 1.1 As a prudential measure aimed at better risk management and avoidance of concentration of credit risk, primary (urban) co-operative banks (UCBs) have been advised to fix limits on their exposure -

• to individual borrowers and group borrowers;
• to specific sectors; and,
• towards unsecured advances. 1.2 In addition, these banks are also required to observe certain statutory and regulatory restrictions in respect of:
• advances against shares, debentures and bonds;
• investments in shares, debentures and bonds. 1.3 Currently operative instructions on all these aspects are detailed in the following paragraphs.

2. Definitions 2.1 Tier-I Capital Tier-I capital as on March 31 of the preceding financial year shall be reckoned for the purpose of fixing the exposure limits. Tier-I capital for the purpose will be the same as that prescribed for computation of capital adequacy of UCBs (vide Master Circular dated April 1, 2025 on Prudential Norms on Capital Adequacy , as amended from time to time). 2.2 Exposure shall include both credit exposure (Loans and Advances) and investment exposure (Non-SLR securities) as indicated below. 2.3 Credit Exposure 2.3.1 Credit exposure shall include -

• funded and non-funded credit limits and underwriting and similar commitments;
• facilities extended by way of equipment leasing and hire purchase financing; and,
• ad hoc limits sanctioned to the borrowers to meet the contingencies. 2.3.2 Credit exposure shall not include loans and advances granted against the security of bank's own term deposits. 2.3.3 The sanctioned limit or outstanding whichever is higher shall be reckoned for arriving at credit exposure limit. Further, in case of fully drawn term loans, where there is no scope of re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding for arriving at credit exposure limit. 2.3.4 In respect of non-funded credit limit, 100 per cent of such limit or outstanding, whichever is higher, need be taken into account for the purpose. 2.3.5 The level of individual bank's share in Consortium / Multiple Banking / Syndication shall be governed by single borrower / group exposure. 2.4 Investment Exposure (Non-SLR securities) UCBs shall be guided by provisions contained at Chapter VII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023 , as updated from time to time. 2.5 Group 2.5.1 The decision in regard to definition of a group is left to the perception of the UCBs, which are generally aware of the basic constitution of their clientele. The group to which a particular borrowing unit belongs may, therefore, be decided by the UCBs on the basis of relevant information available with them, the guiding principle in this regard being commonality of management and effective control. 2.5.2 The different firms with one or more common partners engaged in the same line of business, viz., manufacturing, processing, trading activity, etc. shall be deemed to be connected group and units coming under common ownership shall be deemed to be a single party. 2.6 Unsecured advances Unsecured advances shall include clean overdrafts, loans against personal security, clean bills or Multani hundies purchased or discounted, cheques purchased and drawals allowed against cheques sent for collection but shall exclude:
• advances backed by guarantee of the central or state governments, public sector financial institutions, banks and Deposit Insurance & Credit Guarantee Corporation;
• advances against supply bills drawn on the central or state governments or state owned undertakings which are accompanied by duly authorised inspection notes or receipted challans;
• advances against trust receipts;
• advances against inland Document against Acceptance (D/A) bills drawn under letters of credit;
• advances against inland D/A bills (even where such bills are not drawn under letters of credit) having a usance of not exceeding 90 days;
• advances granted to salaried employees against personal security, provided that the Co-operative Societies Act of the State concerned contains an obligatory provision for deduction of periodical loan instalments by the employer out of the employee's salary / wages to meet the bank's claims and provided further that the bank has taken advantages of this provision in respect of each of such advances 1 ;
• advances against supply bills drawn on private parties of repute and receipted challans of public limited companies and concerns of repute and not outstanding for more than 90 days;
• advances against book debts which are not outstanding for more than 90 days;
• cheques issued by governments, public corporation and local self governing institutions;
• advances in the form of packing credit for exports;
• demand drafts purchased;
• the secured portion of partly secured advances; and,
• advances against legal assignment of contract moneys due, or to become due. Note: All bills of exchange not accompanied by the official receipts of the Indian Railways or Indian Airlines Corporation or Road and Water Transport Operators, as approved by the Board of Directors of the primary co-operative bank, shall be deemed to be clean bills.

3. Exposure Norms 3.1 Exposure Ceiling to Individual / Group Borrowers 3.1.1 UCBs are required to fix, with the approval of their Board of Directors, exposure ceiling in relation to their Tier-I capital. The exposure for the purpose shall comprise both credit exposure (loans and advances) and investment exposure (Non-SLR securities) as detailed at Para 2.3 and 2.4 so that -

• the exposure to an individual borrower does not exceed 15 per cent of Tier-I capital; and,
• the exposure to a group of connected borrowers/parties does not exceed 25 per cent of Tier-I capital. 3.1.2 The exposure limits prescribed in Para 3.1.1 apply to all types of fresh exposures taken by UCBs after March 13, 2020 and UCBs were required to bring down their exposures which were in excess of the revised limits to within the aforesaid revised limits by March 31, 2023. However, where the existing exposure comprises only term loans and non-fund-based facilities, while no further exposure shall be taken on such borrowers, these facilities may be allowed to continue as per their respective repayment schedule / till maturity. 3.1.3 Whether borrowers / parties belong to a ‘group of connected borrowers / parties’ shall be determined based on the instructions contained at Para 2.5.1 and 2.5.2 above. 3.2 Computation of exposure ceiling for individual / group borrowers The exercise of computing the exposure ceilings may be conducted every year after the finalisation and audit of balance sheet of the bank and the exposure ceilings may be advised to the loan sanctioning authorities and the investment department in the bank. In view of the linking of shareholding to lending, accretion to or reduction in the share capital after the balance sheet date, may be taken into account for determining exposure ceiling at half-yearly intervals, with the approval of their Board of Directors. Accordingly, banks may, if they so desire, fix a fresh exposure limit taking into account the amount of share capital available as on 30th September. However, accretion to capital funds other than to share capital, such as half-yearly profit etc., will not be eligible for reckoning the exposure ceiling. Banks should also ensure that they do not take exposures in excess of ceiling prescribed in anticipation of infusion of capital on a future date. 3.3 Small value loans UCBs shall have at least 50 per cent of their aggregate loans and advances comprising of Small Value Loans, i.e., loans of value not more than ₹25 lakh or 0.4 per cent of their Tier-I capital, whichever is higher, subject to a ceiling of ₹3 crore per borrower. Boards of UCBs, however, shall periodically review the portfolio behaviour and quality under different loan-size categories and where necessary, may consider fixing lower ceilings. Tier-I capital for this purpose shall be reckoned in the manner provided in paragraph 2.1 above. Notwithstanding the above, UCBs shall adhere to the exposure limits stipulated at Para 3.1 above. It is clarified that ‘loans’ for the purpose shall include all types of funded and non-funded exposures in the nature of credit. UCBs which do not, at present, comply with the prescribed threshold shall be in conformity with the above requirements as per following glide path: