What changed
This master circular consolidates all capital adequacy instructions issued up to June 30, 2009, replacing the previous year's circular. It updates share-linking norms for borrowings and retains the Basel I-based capital adequacy framework with minimum 8% CRAR and tiered capital definitions.
What it means for you
UCBs must continue to maintain a minimum CRAR of 8% with at least 50% core capital. Share-linking requirements remain unchanged: 5% for unsecured borrowings and 2.5% for secured borrowings, capped at 5% of the bank's paid-up capital per member. Banks need to ensure compliance with these norms to sustain depositor confidence and regulatory standing.
What you must do
- Review and update internal policies to align with the consolidated capital adequacy norms.
- Ensure CRAR is maintained at minimum 8% with core capital at least 50% of total capital.
- Verify share-linking compliance: collect 5% for unsecured borrowings, 2.5% for secured, with SSI secured borrowings at 2.5% (1% upfront, 1.5% over 2 years).
- Submit required returns as per Annex II of the circular.
- Monitor risk weights for assets (0%-100%) and apply market risk capital requirements.
Who it affects
All Primary (Urban) Co-operative Banks, Chief Executive Officers of UCBs, Compliance and risk management teams at UCBs, Borrowing members of UCBs
What is the minimum CRAR required for UCBs under this circular?
The circular mandates a minimum Capital to Risk Asset Ratio (CRAR) of 8%, consistent with the Basel I framework.
How does share-linking work for secured borrowings by SSIs?
For secured borrowings by Small Scale Industries, the share-linking requirement is 2.5% of the borrowing, with 1% collected initially and the remaining 1.5% within the next two years.
Is there a cap on how much share capital a member must hold due to share-linking?
Yes, the share-linking requirement is capped at 5% of the bank's total paid-up share capital per member. If a member already holds 5%, no additional shares are needed.