What changed
RBI issued a circular on February 17, 2006, exempting certain small UCBs from maintaining SLR in prescribed assets. Eligible banks can now hold up to 15% of their DTL as interest-bearing deposits with specified banks instead of government securities. The exemption is effective immediately and valid until March 31, 2008.
What it means for you
Small UCBs facing difficulties accessing the government securities market or lacking expertise get temporary relief from full SLR compliance. They must use this period to build infrastructure, risk management, and human resources to handle market risks. This reduces immediate compliance burden but requires proactive preparation for eventual full SLR adherence.
What you must do
- Check eligibility: non-scheduled UCBs with single branch-cum-head-office or multiple branches within one district, and deposit base of Rs 100 crore or less based on fortnightly average DTL of previous financial year.
- Place up to 15% of DTL in interest-bearing deposits with SBI, its subsidiaries, public sector banks, or IDBI to avail exemption.
- Build adequate infrastructure, risk management practices, and upgrade human resources and technology to reduce market-related risks before March 31, 2008.
- Acknowledge receipt of this circular to the concerned Regional Office of RBI.
Who it affects
Non-scheduled Primary (Urban) Co-operative Banks, UCBs with single branch-cum-head-office, UCBs with multiple branches within a single district, UCBs with deposit base of Rs 100 crore or less
What is the deposit base threshold for eligibility?
The deposit base must be Rs 100 crore or less, determined based on the fortnightly average of DTL in the immediate preceding financial year.
How long is this exemption valid?
The exemption is effective from February 17, 2006, and will remain in force until March 31, 2008.
What should UCBs do during the exemption period?
UCBs should build adequate infrastructure, risk management practices, and upgrade human resources and technology to reduce market-related risks, preparing for full SLR compliance after the exemption ends.