What changed
This master circular consolidates all investment-related instructions issued up to June 30, 2012, replacing the previous master circular dated July 1, 2011. It updates the restrictions on holding shares in other co-operative societies, statutory SLR investments, investment policy, and non-SLR investments. The circular also includes revised guidelines on broker engagement, SGL accounts, and investment fluctuation reserve.
What it means for you
UCBs must ensure their total investments in shares of other co-operative societies (excluding certain exempt categories) do not exceed 2% of owned funds, with a per-society cap of 5% of that society's subscribed capital. Banks need to align their investment policies and internal controls with the consolidated guidelines, particularly for SLR and non-SLR investments. The circular reinforces the need for robust investment accounting and valuation practices.
What you must do
- Review and update your bank's investment policy to comply with the consolidated guidelines, including the 2% owned funds cap on co-operative society shares.
- Ensure all investment transactions, including those through SGL accounts and with brokers, adhere to the prescribed limits and reporting requirements.
- Implement the recommended accounting methodology for repo/reverse repo transactions as per Annex IV.
- Maintain an Investment Fluctuation Reserve (IFR) as per the valuation guidelines to cushion against market risks.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Chief Executive Officers of UCBs, Investment and treasury departments of UCBs, Compliance and risk management teams of UCBs
What is the limit on holding shares in other co-operative societies?
Total investments in shares of other co-operative societies (excluding certain exempt categories) must not exceed 2% of the bank's owned funds. Additionally, investment in any single such society cannot exceed 5% of that society's subscribed capital.
Does this circular replace earlier investment guidelines?
Yes, this master circular consolidates and updates all instructions issued up to June 30, 2012, and supersedes the previous master circular dated July 1, 2011.
What are the key areas covered in this master circular?
It covers restrictions on shareholding in co-operative societies, statutory SLR investments, investment policy, general guidelines, SGL accounts, broker engagement, repo/reverse repo transactions, non-SLR investments, internal controls, valuation, and investment fluctuation reserve.