Master Circular on Investments by Urban Co-op Banks (2007)

RBI/2007-2008/68 UBD.BPD. (PCB). MC.No 2 /16.20.000/2007-08 July 2, 2007 Chief Executive Officers of All Primary (Urban) Co-operative Banks Dear Sir, Master Circular on Investments by Primary (Urban) Co-operative Banks Please refer to our Master Circular UBD.BPD.(PCB).MC.No.8/16.20.00/2006-07 dated July 12, 2006   on the captioned subject (available at RBI website www.rbi.org.in).  The enclosed Master Circular consolidates and updates all the instructions/guidelines on the subject upto June 30, 2007. Yours faithfully, (N.S. Vishwanathan) Chief General Manager In-charge Master Circular on Investments by Primary (Urban) Co-op. Banks Contents 1. Restrictions On Holding Shares in Other Co-operative Societies 2. Statutory (SLR) Investments 3. Investment Policy 4. General Guidelines 5. Transactions through SGL Accounts 6. Use of Bank's Receipts 7. Engagement of brokers 8. Settlement  of Government Securities Transactions through CCIL 9. Trading of Government Securities on Stock Exchanges 10. Ready forward contracts in Govt. Securities 11. Uniform Accounting for Repo/Reverse Repo transaction 12. Non SLR Investments 13. Internal Control and Investment Accounting 14. Recommenations of  Ghosh Committee 15. Categorisation of Investments 16. Valuation of Investments 17. Investment Fluctuation Reserve (IFR) 18. Reporting Annexure I Certain clarifications regarding brokers’ limits II Definitions of certain terms used for non-SLR  Debt Securities III List of All India Financial Institutions IV Disclosure requirements for non-SLR investments V Special Concessions to UCBs in provisioning norms during 2004-05 VI Special Concessions to UCBs in provisioning norms during 2005-06 Appendix : A : List of circulars consolidated in the Master Circular on Investments by primary urban co-operative banks B : List of other circulars from which instructions relating to investments have been consolidated in the Master Circular Master Circular on  Investments by Primary (Urban) Co-operative Banks 1 RESTRICTIONS ON HOLDING SHARES IN OTHER CO-OPERATIVE SOCIETIES 1.1 Section 19 of the Banking Regulation Act, 1949 (as applicable to co-operative societies) stipulates that no co-operative bank shall hold shares in any other co-operative society except to such extent and subject to such conditions as the Reserve Bank may specify in that behalf. However nothing contained in the section applies to - 1.11 shares acquired through funds provided by the state government for that purpose; 1.1.2 in the case of a central co-operative bank,  the holding of shares in the state co-operative bank to which it is affiliated; and 1.1.3 in the case of a primary (urban) co-operative bank ( pcb), holding of shares in the central co-operative bank to which it is affiliated or in the state co-operative bank of the state in which it is registered. 1.2  In pursuance of the powers conferred by section 19 read with section 56 of he said Act, the Reserve Bank has specified that the extent and conditions subject to which co-operative banks may hold shares in any other co-operative society shall be as follows: 1.2.1 The total investments of a co-operative bank in the shares of co-operative institutions, other than those falling under any of the categories stated at paras 1.1.1 to 1.1.3 above, shall not exceed 2 per cent of its owned funds (paid-up share capital and reserves). 1.2.2 The investment of a bank in the shares of any one co-operative institution   coming under para 1.2.1 above shall not exceed 5 per cent of the subscribed capital of that institution. Note: When more than one co-operative bank contributes to the shares in a co-operative society falling under para 1.2.1, the limit of 5 per cent of the subscribed capital indicated above shall apply not in respect of the investment of each of the banks but in respect of the investment of all the banks taken together. In other words, the total investment of all the co-operative banks should be limited to 5 per cent of the subscribed capital of the enterprise concerned. A co-operative bank should offer to make its contribution to the shares of a co-operative society coming under para 1.2.1 above only if the by-laws of the recipient society provide for the retirement of share capital contributed by it. 1.2.3 The retirement of the share capital contributed by a bank to the shares of any society coming under para 1.2.1 above should be completed in 10 equal annual instalments commencing from the co-operative year immediately following the year in which the concern commences business or production. 1.2.4 A co-operative bank should not, except with the permission of the Reserve Bank, contribute to the share capital of a society coming under category referred to in para 1.2.1 above, if it is situated outside its area of operation. 1.2.5 The above restrictions will not apply to holdings by co-operative banks of shares in non-profit making co-operative societies such as those formed for the protection of mutual interests, (e.g. co-operative banks' association) or for the promotion of co-operative education etc. (e.g. state co-operative union), or housing co-operatives for the purpose of acquiring premises on ownership basis, etc. 2   STATUTORY (SLR) INVESTMENTS 2.1 Act Provisions 2.1.1 In terms of provisions of section 24 of the Banking Regulation Act 1949, (As applicable to co-operative societies), every primary (urban) co-operative bank is required to maintain liquid assets which at the close of business on any day should not be less than 25 percent of its demand and time liabilities in India (in addition to the minimum cash reserve requirement). 2.1.2  The banks may hold such liquid assets in the form of cash, gold or unencumbered approved securities.  2.1.3 ‘approved securities’ as defined by section 5(a) (i) & (ii) of the Banking Regulation Act, 1949 (AACS) mean - (i) Securities in which a trustee may invest money under clause (a), (b), (bb), (c) or (d) of Section 20 of the Indian Trust Act, 1882. (ii) Such of the securities authorised by the Central Government under clause (f) of Section 20 of the Indian Trust Act, 1882 as may be prescribed. 2.2 Holding in Government/other approved Securities All primary (urban) co-operative banks are required to achieve certain minimum level of their SLR holdings in the form of government and other approved securities as percentage of their Net Demand and Time Liabilities (NDTL) as indicated below : Sr. No

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2007-2008/68 · issued 02 Jul 2007. The plain-English explanation above is BankPulse’s own independent summary.

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