What changed
RBI, after consulting Indian Banks' Association, issued new guidelines for urban co-operative banks on consortium and multiple banking arrangements. Banks must now obtain borrower declarations about existing credit facilities from other banks, exchange account conduct information quarterly, and get compliance certificates from a professional like a Company Secretary. They are also encouraged to use CIBIL credit reports more and include clauses in loan agreements to address confidentiality issues.
What it means for you
This directive aims to plug information gaps that have led to frauds in consortium and multiple banking setups. For banks, it means tighter due diligence at loan origination and ongoing monitoring through regular data sharing with other lenders. Compliance costs may rise, but the move reduces credit risk and potential fraud losses. Banks must update loan documentation and internal processes to capture and exchange borrower information systematically.
What you must do
- Obtain declarations from new borrowers about credit facilities from other banks using the prescribed format (Annex I).
- For existing borrowers with sanctioned limits of Rs.5 crore and above, seek similar declarations and start quarterly exchange of account conduct information with other banks.
- Ensure loan agreements include clauses allowing exchange of credit information to address confidentiality concerns.
- Leverage CIBIL credit reports more extensively for credit assessment and monitoring.
- Arrange for regular compliance certification by a professional, preferably a Company Secretary, as per the specimen in Annex III.
Who it affects
All Primary Urban Co-operative Banks, Borrowers availing credit facilities from multiple banks, Credit departments and loan officers of UCBs, Compliance and risk management teams
What is the threshold for existing borrowers to provide declarations?
Existing borrowers with sanctioned limits of Rs.5 crore and above must provide declarations about credit facilities from other banks. Banks should also seek declarations from any borrower they know is availing credit from other banks.
How often must banks exchange borrower account conduct information?
Banks must exchange information about the conduct of borrowers' accounts with other banks at least quarterly, using the format given in Annex II of the circular.
What should be included in loan agreements regarding credit information?
Loan agreements should include suitable clauses that allow banks to exchange credit information with other lenders, addressing confidentiality issues. For existing facilities, this should be done at the next renewal.