What changed
This master circular updates and consolidates all prior instructions on exposure norms and statutory restrictions for UCBs up to June 30, 2009. It replaces the previous master circular dated July 1, 2008. The document reiterates existing prudential limits on individual/group exposure, unsecured advances, and sectoral caps, with no new numerical thresholds introduced.
What it means for you
UCBs must continue to adhere to the 15% individual and 40% group exposure limits relative to capital funds. Banks need to compute these ceilings annually post-balance sheet audit and can adjust for share capital changes at half-yearly intervals with board approval. The circular reinforces risk management to avoid credit concentration, impacting lending and investment decisions.
What you must do
- Set board-approved exposure ceilings for individual (15%) and group (40%) borrowers based on capital funds annually.
- Compute exposure ceilings after balance sheet finalization and audit each year.
- Allow half-yearly adjustments to exposure limits for share capital changes as of September 30, with board approval.
- Ensure no exposures exceed ceilings in anticipation of future capital infusion.
- Include both credit exposure (loans) and non-SLR investment exposure when calculating limits.
Who it affects
Primary (Urban) Co-operative Banks, Board of Directors of UCBs, Loan sanctioning authorities and investment departments in UCBs
What are the exposure limits for individual and group borrowers under this circular?
Individual borrower exposure cannot exceed 15% of capital funds, and group borrower exposure is capped at 40% of capital funds.
How often should UCBs compute exposure ceilings?
Exposure ceilings must be computed annually after balance sheet finalization and audit. Banks can also adjust for share capital changes at half-yearly intervals (as of September 30) with board approval.
Does the circular allow using half-yearly profits to increase exposure limits?
No, only accretion to share capital (not other capital funds like half-yearly profits) can be considered for adjusting exposure ceilings at half-yearly intervals.