MASTER CIRCULAR- EXPOSURE NORMS AND STATUTORY / OTHER RESTRICTIONS – UCBS

The Reserve Bank of India (RBI) has issued a Master Circular, dated January 16, 2024, addressing Exposure Norms and Statutory Restrictions applicable to Urban Co-operative Banks (UCBs). This circular consolidates all relevant instructions and guidelines issued until the mentioned date.

Reserve Bank of India

RBI/2023-24/114

DoR.CRE.REC.71/07.10.002/2023-24 Dated: January 16, 2024

The Chief Executive Officers

All Primary (Urban) Co-operative Banks Madam / Dear Sir,

Master Circular- Exposure Norms and Statutory / Other Restrictions – UCBs

Please refer to RBI Master Circular DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015 on the captioned subject (available at RBI website www.rbi.org.in). The updated Master Circular consolidates all the instructions / guidelines on the subject issued till date.

Yours faithfully,

(Vaibhav Chaturvedi) Chief General Manager

Encl: As above

Master Circular on Exposure Norms and Statutory / Other Restrictions-UCBs Contents

Sr. No.    Particulars

1. General
2. Definitions
3. Exposure Norms
   1. Exposure Ceiling to Individual / Group Borrowers
   2. Computation of exposure ceiling for individual / group borrowers

3. 3. Thresholds for value of loans
   4. Exposure to Housing, Real Estate and Commercial Real Estate
   5. Inter-bank Exposure Limit
   6. Placement / acceptance of Deposits
4. Ceiling on Unsecured Advances
   1. Limits on unsecured advances
   2. Aggregate Ceiling on Unsecured Advance
   3. Credit Card Limits
5. Statutory Restrictions
6. Regulatory Restriction
   1. Granting Loans and Advances to Directors and their Relatives
   2. Maximum Ceiling on Advances to Nominal Members
   3. Advances against Fixed Deposit Receipts issued by Other Banks
   4. Advances by Salary Earners’ Primary (Urban) Co-operative Banks (SEBs) against Term Deposits of Non-members
   5. Bridge Loans/Interim Finance
   6. Loans and Advances against Shares, Debentures and Bonds
   7. Bank Finance against Preference Shares and Long Term (Subordinated) Deposits
   8. Bank Finance to Non-Banking Financial Companies
   9. Financing Equipment Leasing and Hire Purchase Financing
   10. Financing for Agricultural Activities
   11. Loans to Self Help Groups (SHGs) / Joint Liability Groups (JLGs)
   12. Restriction on Advances to Defaulters of Statutory Dues Annex 1

Annex 2 Appendix

Master Circular on Exposure Norms and Statutory / Other Restrictions – UCBs

1. General
2. 1. As a prudential measure aimed at better risk management and avoidance of concentration of credit risk, primary (urban) co-operative banks (UCBs) have been advised to fix limits on their exposure –
3. 1. 1. to individual borrowers and group borrowers;
4. 1. 2. to specific sectors; and,
5. 1. 3. towards unsecured advances.
6. 2. In addition, these banks are also required to observe certain statutory and regulatory restrictions in respect of:
7. 1. 1. advances against shares, debentures and bonds;
8. 1. 2. investments in shares, debentures and bonds.
9. 3. Currently operative instructions on all these aspects are detailed in the following paragraphs.
10. Definitions
11. 1. Tier-I Capital

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 April 20, 2023 on Prudential Norms on Capital Adequacy), as amended from time to time.

1. 2. Exposure shall include both credit exposure (Loans and Advances) and investment exposure (Non- SLR securities) as indicated below.
2. 3. Credit Exposure
3. 1. 1. Credit exposure shall include –
4. 1. 1. 1. funded and non-funded credit limits and underwriting and similar commitments;
5. 1. 1. 2. facilities extended by way of equipment leasing and hire purchase financing; and,
6. 1. 1. 3. ad hoc limits sanctioned to the borrowers to meet the contingencies.
7. 1. 2. Credit exposure shall not include loans and advances granted against the security of bank’s own term deposits.
8. 1. 3. 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, banks may reckon the outstanding for arriving at credit exposure limit.
9. 1. 4. 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.

1. 1. 5. The level of individual bank’s share in Consortium / Multiple Banking / Syndication shall be governed by single borrower / group exposure.
2. 4. Investment Exposure (Non-SLR securities)

UCBs shall be guided by provisions contained at Chapter VII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023, as updated from time to time.

1. 5. Group
2. 1. 1. The decision in regard to definition of a group is left to the perception of the UCBs, which are generally aware of the basic constitution of their clientele. The group to which a particular borrowing unit belongs may, therefore, be decided by the UCBs on the basis of relevant information available with them, the guiding principle in this regard being commonality of management and effective control.
3. 1. 2. 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.
4. 6. Unsecured advances

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:

1. 1. 1. advances backed by guarantee of the central or state governments, public sector financial institutions, banks and Deposit Insurance & Credit Guarantee Corporation;
2. 1. 2. 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;
3. 1. 3. advances against trust receipts;
4. 1. 4. advances against inland Document against Acceptance (D/A) bills drawn under letters of credit;
5. 1. 5. 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;
6. 1. 6. 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 bank’s claims and provided further that the bank has taken advantages of this provision in respect of each of such advances;
7. 1. 7. 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;
8. 1. 8. advances against book debts which are not outstanding for more than 90 days;
9. 1. 9. cheques issued by governments, public corporation and local self governing institutions;
10. 1. 10. advances in the form of packing credit for exports;

1. 1. 11. demand drafts purchased;
2. 1. 12. the secured portion of partly secured advances; and,
3. 1. 13. 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, as approved by the Board of Directors of the primary co- operative bank, shall be deemed to be clean bills.

3. Exposure Norms
4. 1. Exposure Ceiling to Individual / Group Borrowers
5. 1. 1. UCBs are required to fix, with the approval of their Board of Directors, exposure ceiling in relation to their Tier-I capital. The exposure for the purpose shall comprise both credit exposure (loans and advances) and investment exposure (Non-SLR securities) as detailed at Para 2.3 and 2.4 so that –
6. 1. 1. 1. the exposure to an individual borrower does not exceed 15 per cent of Tier-I capital; and,
7. 1. 1. 2. the exposure to a group of connected borrowers/parties does not exceed 25 per cent of Tier-I capital.
8. 1. 2. The exposure limits prescribed in Para 3.1.1 apply to all types of fresh exposures taken by UCBs after March 13, 2020 and UCBs were required to bring down their exposures which were 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.
9. 1. 3. Whether borrowers / parties belong to a ‘group of connected borrowers / parties’ shall be determined based on the instructions contained at Para 2.5.1 and 2.5.2 above.
10. 2. Computation of exposure ceiling for individual / group borrowers

The exercise of computing the exposure ceilings may be conducted every year after the finalisation and audit of balance sheet of the bank and the exposure ceilings may be advised to the loan sanctioning authorities and the investment department in the bank. In view of the linking of shareholding to lending, accretion to or reduction in the share capital after the balance sheet date, may be taken into account for determining exposure ceiling at half- yearly intervals, with the approval of their Board of Directors. Accordingly, banks may, if they so desire, fix a fresh exposure limit taking into account the amount of share capital available as on 30th September. However, accretion to capital funds other than to share capital, such as half-yearly profit etc., will not be eligible for reckoning the exposure ceiling. Banks should also ensure that they do not take exposures in excess of ceiling prescribed in anticipation of infusion of capital on a future date.

1. 3. Thresholds for value of loans

UCBs shall have at least 50 per cent of their aggregate loans and advances comprising loans of not more than

?25 lakh or 0.2 per cent of their Tier-I capital, whichever is higher, subject to a maximum of ?1 crore, per borrower / party. Tier-I capital for this purpose shall be reckoned in the manner provided in paragraph 2.1 above. Notwithstanding the above, UCBs shall adhere to the exposure limits stipulated at Para 3.1 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.

1. 4. Exposure to Housing, Real Estate and Commercial Real Estate
2. 1. 1. UCBs are advised to frame, with the approval of their Board of Directors, comprehensive prudential norms relating to the ceiling on the total amount of real estate loans, keeping in view the Reserve Bank of India guidelines to ensure that bank credit is used for construction activity and not for activity connected with speculation in real estate subject to the instructions in following paragraphs.
3. 1. 2. The exposure of UCBs to housing (including individual loans for house repairs, additions and alteration), real estate and commercial real estate loans (including Commercial Real Estate –Residential Housing) would be limited to 10 per cent of their total assets. The above ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per cent of total assets for the purpose of grant of housing loans to individuals as per the eligibility limits for priority sector classification, as contained in Master Direction FIDD.CO.Plan.BC.5/04.09.01/2020-21 dated September 04, 2020, amended from time to time.
4. 1. 3. The total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding financial year. For reckoning total assets, losses, intangible assets, contra items like bills receivables etc. would be excluded.
5. 1. 4. Working capital loans given by UCBs against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments is exempted from the prescribed limit.
6. 1. 5. UCBs are not permitted to exceed the limit prescribed for grant of housing, real estate, commercial real estate loans to the extent of funds obtained from higher financing agencies and refinance from National Housing Bank.
7. 1. 6. Tier-11 UCBs are permitted to extend individual housing loans upto a maximum of ?60 lakh per individual borrower and UCBs categorised in Tier-2 to 4 can extend individual housing loans up to a maximum of ?140 lakh per individual borrower subject to extant prudential exposure limits.
8. 5. Inter-bank Exposure Limit
9. 1. 1. Prudential Inter-bank (Gross) Exposure Limit

UCBs shall be guided by provisions contained at Para 14.1 (a) of chapter VIII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023, as updated from time to time.

1. 1. 2. Prudential Inter-bank Counterparty Limit

UCBs shall be guided by provisions contained at Para 14.1 (b) of chapter VIII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023, as updated from time to time.

1. 6. Placement / acceptance of Deposits

Placement / acceptance of deposits by UCBs shall be subject to instructions contained under Chapter VIII of Master Direction on Classification, Valuation and Operation of Investment Portfolio of UCBs dated April 1, 2023, as amended from time to time.