UCBs: Review Deposits with Other Banks for Clearing
Current · Source: Reserve Bank of India · RBI/2009-2010/485 · issued 07 Jun 2010 · ~1 min read
Quick answerRBI directs non-scheduled UCBs to periodically review deposits placed with other non-scheduled UCBs for clearing arrangements, using published financials, to mitigate counterparty risk from potential downturns.
The rule, in the simplest words
Non-scheduled Urban Co-operative Banks (UCBs) must review deposits with other UCBs for clearing arrangements to reduce [counterparty risk, or the risk of the other bank not being able to pay back]
Reviews should use the other bank's published [balance sheet, a document showing the bank's financial situation] and [profit/loss account, a document showing the bank's income and expenses]
This review should be part of the bank's [board-approved deposit policy, a set of rules decided by the bank's board of directors] and checked by the board every half year
The goal is to prevent [contagion risk, or the risk of one bank's problems affecting another bank]
How it plays out — a real example
["A clearing officer at a small non-scheduled UCB in Mumbai, named Rohan, must now regularly check the financial health of a larger non-scheduled UCB where his bank keeps a current account for clearing purposes. He uses the latest published financials of the larger bank to assess the risk. If the larger bank's financial situation worsens, Rohan's bank may need to reconsider its deposit. This helps protect his bank from potential losses. By doing so, Rohan is following the RBI's directive to mitigate counterparty risk."]
What changed
RBI observed that smaller non-scheduled UCBs maintain current account balances with larger non-scheduled UCBs for sub-member clearing. It now mandates periodic review of such exposures based on the counterparty's published balance sheet and profit/loss account.
What it means for you
Non-scheduled UCBs must actively monitor the financial health of banks where they place deposits for clearing. This reduces contagion risk if a counterparty faces a downturn. Lenders should integrate this review into their board-approved deposit policy and half-yearly board reviews.
What you must do
Review all existing clearing-related deposits with other non-scheduled UCBs using their latest published financials.
Update your board-approved deposit policy to include periodic review frequency for such exposures.
Ensure half-yearly board review covers counterparty risk from clearing deposits.
Document review outcomes and any corrective actions taken.
Who it affects
Non-scheduled Primary (Urban) Co-operative Banks, UCBs using sub-member clearing arrangements with other non-scheduled UCBs
❓ Common questions
Does this circular apply to scheduled UCBs?
No, the circular specifically addresses non-scheduled UCBs that place deposits with other non-scheduled UCBs for clearing arrangements.
How often must we review these exposures?
The circular advises periodic review based on the counterparty's published balance sheet and profit/loss account, but does not specify a fixed frequency. However, the earlier master circular requires half-yearly board review of the overall deposit policy.
📜 Read the original circular — full text as issued by RBI
RBI/2009-2010/485
UBD.CO.BSD/PCB. Cir./ 68 /12.22.351/2009-10
June 7, 2010
The Chief Executive Officers of
All Primary (Urban) Co-operative Banks
Placement of deposits with other banks by Primary
(Urban) Co-operative Banks (UCBs) for availing clearing facility
Please refer to our circular No. UBD. (PCB). BPD. Cir. No. 47/16.20.000/2008-09 dated January 30, 2009 on the captioned subject. The prudential interbank (gross) exposure limit and inter-bank counter party limit for placing deposits with other banks by UCBs for all purposes including for availing clearing facility was prescribed.
2. Further in terms of para 12.3.5 of Master Circular dated July 1, 2009 UCBs were advised to formulate a policy taking into account their funds position, liquidity and other needs for placement of deposits with other banks, the cost of funds, expected rate of return and interest margin on such deposits, the counter party risk, etc. and place it before their Board of Directors. It was further advised that the Board should review the position at least at half yearly intervals.
3. It has been observed that the smaller non-scheduled UCBs are keeping current account / minimum required balance for clearing purpose with relatively larger non-scheduled bank for sub member clearing arrangements. It is possible that the financial position of the non-scheduled UCB, with whom such deposits are kept, could take a hit due to unexpected downturn in its business and which could have a effect on the financial position of the depositing bank and its business. In view of this non-scheduled UCBs, which have exposures to other non-scheduled UCBs on account of clearing arrangements, are advised to review their exposures to such banks periodically based on their published balance sheet and Profit and Loss account statements.
Yours faithfully,
(P. K. Arora)
General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-2010/485 · issued 07 Jun 2010. The plain-English explanation above is BankPulse’s own independent summary.
Ensure half-yearly board review covers counterparty risk from clearing deposits.
⚙️ Operations
Review all existing clearing-related deposits with other non-scheduled UCBs using their latest published financials.
📜 Compliance
Update your board-approved deposit policy to include periodic review frequency for such exposures.
Document review outcomes and any corrective actions taken.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an Operations officer at a bank this circular applies to (Non-scheduled Primary (Urban) Co-operative Banks, UCBs using sub-member clearing arrangements with other non-scheduled UCBs), your first concrete step on “UCBs: Review Deposits with Other Banks for Clearing” is: “Review all existing clearing-related deposits with other non-scheduled UCBs using their latest published financials.” (RBI issued this 07 Jun 2010).
Circular: RBI/2009-2010/485 -- UCBs: Review Deposits with Other Banks for Clearing
Issued: 07 Jun 2010
Action required: Review all existing clearing-related deposits with other non-scheduled UCBs using their latest published financials.
Action required: Update your board-approved deposit policy to include periodic review frequency for such exposures.
Action required: Document review outcomes and any corrective actions taken.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5710&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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