Urban Co-operative Banks Concentration Risk Management Directions

RBI/DOR/2025-26/281 DOR.CRE.REC.200/07-03-005/2025-26 November 28, 2025

Reserve Bank of India (Urban Co-operative Banks - Concentration Risk Management) Directions, 2025

Table of Contents

• Chapter I - Preliminary
• Chapter II - Exposure Norms
• Chapter III - Repeal and other provisions

Introduction

The concentration of a bank’s exposures to a single counterparty or a group of connected counterparties poses significant risks. The Reserve Bank of India (RBI), recognizing the imperative of robust risk management, therefore introduced prudential exposure limits for Urban Co-operative Banks (UCBs) in May 1994 with reference to their demand and time liabilities (DTL). These norms were revised in January 1996 and exposure norms were redefined with reference to a bank’s Capital Funds. These limits restrict banks’ exposures to individual borrower and group of interconnected borrowers, laying the foundation for mitigating concentration risk on assets side of their balance sheets. Further, prudential norms for limiting exposures to unsecured advances and inter-bank exposures were also issued. With a view to ensuring a granular portfolio and restricting advances to very large borrowers, UCBs are also subject to prudential norms on small value loans. These prudential norms collectively address the concentration risks faced by UCBs and they are being consolidated in these Directions.

In exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks: Concentration Risk Management) Directions, 2025.

2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as 'UCBs' and individually as a 'UCB').

In this context, urban co-operative banks shall mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

C. Definitions

4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them in the ensuing paragraphs.

(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.

(i) 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, a UCB may reckon the outstanding for arriving at credit exposure limit.

(ii) 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.

(iii) The level of an individual UCB's share in Consortium / Multiple Banking / Syndication shall be governed by single borrower / group exposure.

(iv) Credit exposure shall not include loans and advances granted against the security of a UCB’s own term deposits.

(2) “Investment Exposure (Non-SLR securities)” shall be the same as prescribed by provisions contained at Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025.

(3) “Exposure” shall include both credit exposure (Loans and Advances) and investment exposure (Non-SLR securities) as indicated in paragraphs 4(1) and 4(2).

(4) “Group”:

(i) The decision in regard to definition of a group is left to the perception of a UCB, which is generally aware of the basic constitution of its clientele. The group to which a particular borrowing unit belongs may, therefore, be decided by the UCB on the basis of relevant information available with it, the guiding principle in this regard being commonality of management and effective control.

(ii) 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.

(5) “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 shall be the same as that prescribed in Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025.

(6) “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:

(i) advances backed by guarantee of the central or state governments, public sector financial institutions, banks and Deposit Insurance & Credit Guarantee Corporation;

(ii) 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;

(iii) advances against trust receipts;

(iv) advances against inland Document against Acceptance (D/A) bills drawn under letters of credit;

(v) 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;

(vi) 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 UCB's claims, and

Provided further that the UCB has taken advantages of this provision in respect of each of such advances (please refer to paragraphs 23 and 24);

(vii) 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;

(viii) advances against book debts which are not outstanding for more than 90 days;

(ix) cheques issued by governments, public corporation and local self-governing institutions;

(x) advances in the form of packing credit for exports;

(xi) demand drafts purchased;

(xii) the secured portion of partly secured advances; and

(xiii) 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 shall be deemed to be clean bills.

(7) “Nominal member” shall include any person who is co-parcener or who desires to stand surety for a borrowing member of the bank or who desires to borrow occasionally for a temporary period (i) for purchase of consumer durables, (ii) against certain tangible securities such as gold and silver ornaments, fixed deposit receipts, life insurance policies, government and other securities. Such person may be enrolled as a nominal member upon his application in a prescribed form on payment of nominal fees as non-refundable entrance fee provided he resides or is gainfully engaged in any occupation within the area of operation of the bank. A co-operative society registered under any law shall not be eligible and as such shall not be admitted to nominal membership. The nominal member shall not be entitled to receive a share certificate, audited accounts, annual report and dividend. The nominal member shall not be entitled to attend, participate and vote in the General Meeting and/or Special General Meeting of the Bank.