What changed
This master circular updates and consolidates all prior instructions on exposure norms and statutory restrictions for UCBs issued up to June 30, 2007. It replaces the earlier master circular dated July 1, 2006. The content remains largely unchanged, but the consolidation ensures all current rules are in one place.
What it means for you
UCBs must continue to adhere to exposure ceilings: 15% of capital funds for individual borrowers and 40% for groups. Banks must compute these limits annually after balance sheet finalization, with half-yearly adjustments allowed for share capital changes. Unsecured advances and loans to directors remain tightly regulated to manage credit risk.
What you must do
- Fix exposure ceilings for individual and group borrowers with board approval, ensuring they do not exceed 15% and 40% of capital funds respectively.
- Compute exposure limits annually after balance sheet audit, and update half-yearly if share capital changes, but do not anticipate capital infusion.
- Ensure compliance with statutory restrictions on advances against own shares, to directors, and on unsecured advances as per the circular.
- Review and align all loan sanctioning and investment department processes with the updated exposure norms.
Who it affects
Primary (Urban) Co-operative Banks, Board of Directors of UCBs, Loan sanctioning authorities in UCBs, Investment departments of UCBs
What is the exposure ceiling for an individual borrower under this circular?
The exposure to an individual borrower must not exceed 15% of the bank's capital funds, as per para 2.1.1(i).
Can we adjust exposure limits mid-year based on new share capital?
Yes, with board approval, you can fix fresh limits half-yearly (e.g., as of September 30) considering share capital changes, but not other capital funds like half-yearly profits.
Does this circular apply to all types of advances?
Yes, it covers credit exposure (funded and non-funded) and investment exposure (non-SLR), with specific rules for unsecured advances, director loans, and sectoral exposures like real estate.