What changed
The circular updates the 2004 guidelines on Non-SLR investments for UCBs. It clarifies that only redeemable debentures, bonds, and A or equivalent rated Commercial Papers are allowed, while perpetual debt instruments are banned. Fresh investments in Mutual Fund units (except debt/money market funds) and AIFI shares are prohibited, with existing holdings to be disinvested. Inter-bank deposits are now capped at 10% of DTL as on March 31 of the previous year, with a single bank exposure limit of 2% of DTL inclusive of total non-SLR investments and deposits placed with that bank.
What it means for you
UCBs get more clarity on permissible Non-SLR instruments, but the overall 10% deposit cap remains unchanged. The ban on perpetual debt and non-debt mutual funds limits riskier exposures, while the HFT/AFS classification ensures mark-to-market discipline. The inter-bank deposit cap and single bank exposure limit tighten liquidity management, especially for smaller UCBs. Tier I UCBs get a relaxation to place deposits up to 15% of their NDTL with Public Sector Banks over and above the 10% prudential limit.
What you must do
- Review current Non-SLR portfolio to ensure compliance with the 10% deposit cap and redeemable-only instrument rule.
- Disinvest existing holdings in non-debt mutual funds and AIFI shares as per the phase-out timeline.
- Reclassify all fresh Non-SLR investments as HFT or AFS and apply mark-to-market valuation.
- Monitor inter-bank deposits to stay within the 10% DTL limit as on March 31 of the previous year and single bank exposure of 2% of DTL inclusive of total non-SLR investments and deposits placed with that bank.
- For Tier I UCBs, utilize the additional allowance to place deposits up to 15% of NDTL with Public Sector Banks over and above the 10% prudential limit if needed.
Who it affects
All Primary (Urban) Co-operative Banks, Tier I UCBs (as defined in the source), Non-scheduled UCBs with single branch-cum-head-office or multiple branches within a single district and deposit base of Rs.100 crore or less
What is the overall cap on Non-SLR investments for UCBs?
Non-SLR investments are limited to 10% of a bank's total deposits as on March 31 of the previous year. This cap remains unchanged from the earlier circular.
Are UCBs allowed to invest in mutual funds?
Only Debt Mutual Funds and Money Market Mutual Funds are permitted. Investments in other mutual fund units, including UTI, must be disinvested. Existing holdings count toward the Non-SLR limit until sold.
What are the new inter-bank deposit limits?
Total inter-bank deposits (for all purposes) cannot exceed 10% of DTL as on March 31 of the previous year. Exposure to any single bank is capped at 2% of the depositing bank's DTL as on March 31 of the previous year, inclusive of total non-SLR investments and deposits placed with that bank, excluding deposits for CSGL, currency chest, or non-fund facilities. Tier I UCBs may place deposits up to 15% of their NDTL with Public Sector Banks over and above the 10% prudential limit.