What changed
RBI observed that some UCBs were making large donations from charity funds, harming depositor interests. It has now mandated that normal annual donations cannot exceed 1% of the previous year's published profits. Total donations, including those to National Funds or government-recognised funds, are capped at 2% of those profits.
What it means for you
UCBs must now strictly limit charitable spending to protect depositor funds. The 1% and 2% caps apply regardless of any charity fund balance created under state or multi-state acts. Non-compliance invites penalties under Section 35A of the Banking Regulation Act, 1949.
What you must do
- Calculate the 1% cap on normal donations using the previous year's published profits.
- Ensure total donations including to government-recognised funds stay within 2% of those profits.
- Review and adjust any planned or ongoing charitable commitments to comply with these limits.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
All Primary (Urban) Co-operative Banks, Board of Directors and management of UCBs, Depositors of urban co-operative banks
Does the 1% cap apply if our bank has a large charity fund balance from previous years?
Yes, the restriction applies to all UCBs irrespective of any funds available in the charity fund or similar reserves created under other legislation.
What happens if we exceed the 2% total donation limit?
Any contravention or non-compliance will attract penalties under the relevant provisions of the Banking Regulation Act, 1949.