With a view to reducing the exposures of urban co-operative banks to individual and group borrowers, RBI had proposed to amend certain regulatory guidelines and a draft circular proposing the changes were earlier circulated.
After receiving the comments, the regulator has now come out with a fresh limit which while remains the same for an individual borrower (15%) but has been lowered for the group of borrowers from 40% to 25%.
These measures are expected to strengthen the resilience and sustainability of UCBs and protect the interest of depositors, claims RBI notification.
RBI says “UCBs shall prepare, with the approval of their Board, an Action Plan for compliance with the aforesaid revised exposure limits and priority sector lending targets. They are also advised to establish an appropriate mechanism to regularly monitor the progress made under the Action Plan for compliance with the above instructions.”
“A copy of this circular should be placed before the Board of Directors of the UCB in its next meeting and a confirmation thereof should be sent to the concerned Regional Office of Department of Supervision, Reserve Bank of India”, reads the notification.
The notification reads “After examining the comments received in this regard, the final guidelines on the subject are given below.
On a review, it has been decided that, henceforth, the prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 15 per cent and 25 per cent, respectively, of their tier-I capital.
The revised exposure limits shall apply to all types of fresh exposures taken by UCBs. UCBs shall bring down their existing exposures which are 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.
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 July 1, 2015 on Prudential Norms on Capital Adequacy), as amended from time to time.
Whether borrowers/parties belong to a ‘group of connected borrowers/parties’ shall be determined based on the instructions contained at para 2.2.3 and 2.2.4 of the Master Circular DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015, as amended from time to time.
All other extant instructions on the subject, including the definition of exposure, will remain unchanged.
UCBs shall have at least 50 per cent of their aggregate loans and advances comprising loans of not more than Rs 25 lakh or 0.2% of their tier I capital, whichever is higher, subject to a maximum of Rs.1 crore, per borrower/party. Tier I capital for this purpose shall be reckoned in the manner provided in paragraph 2.1.2 above. Notwithstanding the above, UCBs shall adhere to the revised exposure limits stipulated at para 2.1 above. UCBs which do not, at present, comply with the prescribed threshold shall be in conformity with the above requirements by March 31, 2024.
It is clarified that ‘loans’ for the purpose shall include all types of funded and non-funded exposures in the nature of credit.
The overall priority sector lending (PSL) target for UCBs stood at 40% of the adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is higher. On a review, it has been decided that the overall PSL target for UCBs shall stand increased to 75 per cent of ANBC or CEOBSE, whichever is higher.