What changed
Previously, all UCBs had to enforce share-linking—borrowers had to buy shares equal to 2.5–5% of their loan. Now, UCBs maintaining a CRAR of 12% or above on a continuous basis are exempt from this norm. The exemption is effective from November 15, 2010.
What it means for you
Well-capitalised UCBs can now lend without forcing borrowers to buy shares, reducing compliance burden and making loans more attractive. This gives stronger UCBs flexibility to grow their loan book without adding to capital through share subscriptions. Other UCBs must continue the existing share-linking requirement.
What you must do
- Verify your UCB's CRAR is 12% or above on a continuous basis to claim exemption.
- Update loan sanction procedures to remove share-linking condition for eligible borrowers.
- Maintain documentation proving continuous CRAR compliance for audit and inspection purposes.
- Communicate the exemption to loan officers and borrowers to avoid confusion.
Who it affects
Urban Co-operative Banks with CRAR ≥12%, Borrowers of exempted UCBs, Loan officers and compliance teams at UCBs
What is the share-linking norm that has been exempted?
It was mandatory for borrowers of UCBs to subscribe to shares of the bank equal to 2.5% to 5% of their borrowings. This circular exempts well-capitalised UCBs from that requirement.
What CRAR threshold qualifies a UCB for this exemption?
A UCB must maintain a capital to risk-weighted assets ratio (CRAR) of 12% or above on a continuous basis to be eligible for the exemption.
When does this exemption take effect?
The exemption is effective from the date of the circular, i.e., November 15, 2010.