What changed
Previously, UCBs had to use the higher of sanctioned limit or outstanding for credit exposure. Now, for fully drawn term loans with no redrawal option, banks may use only the outstanding amount.
What it means for you
This gives UCBs more headroom in their credit exposure calculations for term loans that are fully disbursed and locked. It reduces the notional exposure, potentially allowing more lending capacity without breaching prudential limits.
What you must do
- Identify all fully drawn term loans in your portfolio where no redrawal is possible.
- Update your credit exposure monitoring system to use outstanding instead of sanctioned limit for such loans.
- Ensure compliance with all other unchanged terms from the April 15, 2005 circular.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
Primary (Urban) Co-operative Banks, Credit risk managers at UCBs, Loan operations teams handling term loan portfolios
Does this apply to all loans or only term loans?
Only fully drawn term loans where no portion of the sanctioned limit can be redrawn. Other loan types still follow the earlier rule of using the higher of sanctioned limit or outstanding.
Do we need to change our reporting to RBI?
No new reporting format is introduced. However, you must update internal systems to reflect the new calculation method and acknowledge receipt of this circular to your Regional Office.