In a move to strengthen the financial stability and operational efficiency of Multi-State Thrift & Credit Societies, the Ministry of Cooperation has issued a glide path for meeting liquidity, exposure, and prudential norms.
The directive stems from the Multi-State Cooperative Societies (MSCS) (Amendment) Act, 2023, which mandates societies registered before the commencement of the Act to comply with prudential norms within five years, by 2028-29.
The framework, outlined in office order L-11012/01/2023-Reg dated January 22, 2024, applies to multi-purpose cooperative societies with credit activities as per their approved bye-laws.
Under the new norms, Micro and Small societies are required to achieve a minimum CRAR of 9%, while Medium and Large societies must attain 12% by the end of the five-year period.
Liquidity requirements have also been specified, mandating societies to maintain a minimum of 2% of their deposits in cash and equivalent accounts. Investment requirements for these societies will progressively increase to 18% of total deposits, with specific guidelines for the type of permitted investments, including term deposits with scheduled banks and securities guaranteed by the government for large societies.
The directive imposes stringent exposure limits to ensure financial discipline. Aggregate deposits and loans are restricted to ten times the sum of subscribed share capital and reserves, minus accumulated losses. Additionally, individual borrower exposure has been capped at 15%, and group borrower exposure is limited to 25% of Tier-I and Tier-II capital.
Unsecured loans have been capped at 15% of total loans and advances, with exceptions for self-help groups, employee credit societies, and cooperatives engaged in microfinance activities.
For housing loans, only Medium and Large societies are permitted to provide loans to individual borrowers for residential purposes, with ceilings of Rs 1 crore for Medium societies and Rs 1.20 crore for Large societies. Loans for land acquisition or financing builders remain prohibited.
Societies registered after the enactment of the MSCS (Amendment) Act, 2023, are required to adhere to these norms from the outset of their operations. The glide path is expected to provide a structured approach for societies to transition smoothly into compliance, thereby ensuring their financial sustainability and long-term growth.
This directive, issued with the approval of the competent authority, underscores the government’s commitment to fostering a robust cooperative sector while safeguarding the interests of stakeholders and members.
Micro multi-state credit co-operatives are those with deposits up to Rs 10 crore, while small MSCS are those with deposits above Rs 10 crore and up to Rs 100 crore. Medium MSCS have deposits above Rs 100 crore and up to Rs 500 crore, and large MSCS are those with deposits exceeding Rs 500 crore.
