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
- Reclassify PNCPs as shares for share-linking norm calculations.
- Immediately stop sanctioning any loans or advances against preference shares or PNCPs.
- Permit existing shareholders to subscribe to Long Term Deposits without restriction.
- Acknowledge receipt of this circular to your respective Regional Office.
Who it affects
All Primary (Urban) Co-operative Banks, UCB compliance and credit departments, Existing shareholders of UCBs
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.