What changed
The previous Rs 5,000 limit on unsecured advances without surety for third-party cheque transactions has been increased to graded limits: scheduled banks in Gr-III & IV to Rs 25,000, other scheduled banks to Rs 50,000, non-scheduled banks to Rs 10,000 or Rs 20,000. Additionally, total unsecured advances (with and without surety) to members must be reduced from 33.33% to 15% of DTL, with interim target of 20% by March 31, 2006 and final by March 31, 2007.
What it means for you
UCBs get more headroom to handle third-party cheque transactions in emergencies, which should ease operational constraints reported by the sector. However, the sharp reduction in the overall unsecured advances cap from 33.33% to 15% of DTL will force banks to tighten credit policies and monitor exposures more closely, especially for members with existing unsecured facilities. The phased implementation gives banks until March 2007 to adjust, but compliance will require proactive portfolio rebalancing.
What you must do
- Update internal lending policies to reflect the new unsecured advance limits for third-party cheque transactions based on your bank's category.
- Implement a monitoring mechanism to ensure total unsecured advances (with and without surety) do not exceed 20% of DTL by March 31, 2006, and 15% by March 31, 2007.
- Obtain and verify names and market standing of parties for third-party cheque transactions to prevent kite flying or fraudulent activities.
- Communicate the revised limits and compliance timeline to all branches and credit officers immediately.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Scheduled UCBs in Gr-III & IV, Other scheduled UCBs, Non-scheduled UCBs, Borrowers/members seeking unsecured advances
What is the new limit for unsecured advances without surety for third-party cheques?
For scheduled banks in Gr-III & IV, the limit is Rs 25,000; for other scheduled banks, Rs 50,000; for non-scheduled banks, Rs 10,000 (with a higher grade of Rs 20,000). These apply only for temporary 30-day emergency cases.
When must UCBs comply with the reduced overall unsecured advances cap of 15% of DTL?
Banks must achieve 20% of DTL by March 31, 2006, and the final 15% limit by March 31, 2007.
Does this circular affect other types of unsecured advances like clean bills or multani hundis?
No, the Rs 5,000 limit continues to apply for other unsecured advances such as clean bills and multani hundis for up to 30 days.