What changed
This July 1, 2011 Master Circular updates and consolidates all prior instructions on exposure norms and statutory/other restrictions for Primary (Urban) Co-operative Banks, effective up to June 30, 2011. It replaces the previous Master Circular dated July 1, 2010, incorporating any amendments issued during the intervening period.
What it means for you
UCBs must now strictly adhere to board-approved exposure ceilings: 15% of capital funds for individual borrowers and 40% for groups, reviewed annually post-audit. Half-yearly adjustments are allowed only for share capital changes, not for other capital accretions like profits. Banks cannot exceed limits in anticipation of future capital infusion.
What you must do
- Set board-approved exposure ceilings at 15% (individual) and 40% (group) of capital funds, covering both credit and non-SLR investment exposure.
- Review and recompute exposure limits annually after balance sheet finalization, and optionally at half-yearly intervals for share capital changes only.
- Ensure no exposure is taken in excess of ceilings based on expected future capital infusion.
- Comply with all statutory restrictions, including limits on unsecured advances, advances to directors, and loans against shares/debentures.
Who it affects
Primary (Urban) Co-operative Banks, Board of Directors of UCBs, Loan sanctioning authorities and investment departments of UCBs
What is the exposure ceiling for an individual borrower under this circular?
The exposure to an individual borrower must not exceed 15% of the bank's capital funds, as per para 2.1.1(i) of the circular.
Can we adjust exposure limits mid-year based on half-yearly profits?
No. Only accretion to share capital (e.g., from shareholding linked to lending) can be considered for half-yearly limit adjustments, not profits or other capital fund increases.
Does this circular apply to all types of exposure?
Yes, the exposure ceiling covers both credit exposure (loans and advances) and non-SLR investment exposure, as defined in para 2.2.2(B).