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
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.