Home › Circulars › RBI/2008-09/349

UCB Capital Instruments: PNCPs, Preference Shares, LTDs

Current · Source: Reserve Bank of India · RBI/2008-09/349 · issued 15 Jul 2008 · ~1 min read
Quick answerRBI clarifies that PNCPs count as shares for share-linking norms, bans loans against preference shares, and allows existing shareholders to subscribe to Long Term Deposits.
The rule, in the simplest words
How it plays out — a real example

A UCB compliance officer named Ramesh in Mumbai checks the bank’s share records. He sees that the PNCPs held by the bank can now be counted as shares, so he updates the share‑linking report. Later, he reminds the credit team that they must stop using preference shares as loan collateral, and he encourages existing shareholders to invest in LTDs for better returns.

What changed

RBI issued clarifications on the July 15, 2008 circular regarding capital instruments for Urban Co-operative Banks. PNCPs can now be treated as shares for share-linking compliance. Loans against preference shares (including PNCPs) are prohibited. Existing shareholders are not barred from subscribing to Long Term Deposits.

What it means for you

UCBs can use PNCPs to meet share-linking requirements, easing capital compliance. The ban on loans against preference shares tightens risk management by preventing collateralized lending on these instruments. Allowing existing shareholders to subscribe to LTDs opens a broader investor base for these deposits.

What you must do

Who it affects

All Primary (Urban) Co-operative Banks, UCB compliance and credit departments, Existing shareholders of UCBs

❓ Common questions

Can we treat PNCPs as shares for all purposes?

No, only for compliance with share linking norms as specified in the circular.

Are loans against preference shares completely banned?

Yes, no loans or advances should be sanctioned against the collateral of preference shares, including PNCPs.

Can existing shareholders subscribe to Long Term Deposits?

Yes, there is no prohibition on existing shareholders subscribing to LTDs.

📜 Read the original circular — full text as issued by RBI
RBI/2008-09/349 UBD.PCB. Cir .No.32/09.18.201/2008-09 January 13 , 2009 The Chief Executive Officer of All Primary  (Urban) Co-operative Banks. Dear Sir/Madam, Instruments for Augmenting Capital Funds- UCBs Please refer to our circular UBD.PCB. Cir. No. 4/ 09.18.201/2008-09 dated July 15, 2008 on the captioned subject, forwarding  therewith guidelines on issuance of Preference Shares and Long Term Deposits (LTDs). 2. In this connection we further advise as under: (i)  PNCPs held may be treated as shares for the purpose of compliance with extant share linking norms. (ii) No loans and advances should be sanctioned against the collateral of preference shares (including PNCPs). (iii) There is no prohibition on existing shareholders subscribing to Long Term Deposits ( LTDs). 3. Please acknowledge receipt to the Regional Office concerned. Yours faithfully, (A.K.Khound) Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/349 · issued 15 Jul 2008. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (All Primary (Urban) Co-operative Banks, UCB compliance and credit departments, Existing shareholders of UCBs), your first concrete step on “UCB Capital Instruments: PNCPs, Preference Shares, LTDs” is: “Reclassify PNCPs as shares for share-linking norm calculations.” (RBI issued this 15 Jul 2008).

  1. Circular: RBI/2008-09/349 -- UCB Capital Instruments: PNCPs, Preference Shares, LTDs
  2. Issued: 15 Jul 2008
  3. Action required: Reclassify PNCPs as shares for share-linking norm calculations.
  4. Action required: Immediately stop sanctioning any loans or advances against preference shares or PNCPs.
  5. Action required: Permit existing shareholders to subscribe to Long Term Deposits without restriction.
  6. Action required: Acknowledge receipt of this circular to your respective Regional Office.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4773&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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