Master Circular on Exposure Norms and Statutory Restrictions for UCBs

RBI/2023-24/114
DoR.CRE.REC.71/07.10.002/2023-24
January 16, 2024

The Chief Executive Officers
All Primary (Urban) Co-operative Banks

Madam / Dear Sir,

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

Please refer to
RBI Master Circular DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015
on the captioned subject (available at RBI website
www.rbi.org.in
). The updated
Master Circular
consolidates all the instructions / guidelines on the subject issued till date.

Yours faithfully,

(Vaibhav Chaturvedi)
Chief General Manager

Encl: As above

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

Contents

Master Circular on Exposure Norms and Statutory / Other Restrictions – UCBs

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 20, 2023 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;
• 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.