What changed
This Master Circular updates the previous July 2011 circular, consolidating all instructions on exposure norms and statutory/other restrictions issued up to June 30, 2012. It reiterates existing prudential limits on individual/group borrower exposure, unsecured advances, and sectoral caps, while clarifying definitions and compliance procedures.
What it means for you
UCBs must continue to adhere to strict exposure limits to avoid credit concentration risk. The circular reinforces the need for annual board-approved ceilings and half-yearly reviews based on share capital changes. Banks cannot exceed limits in anticipation of future capital infusion, ensuring disciplined risk management.
What you must do
- Fix exposure ceilings for individual (15% of capital funds) and group borrowers (40%) with board approval annually after balance sheet finalization.
- Conduct half-yearly reviews of exposure limits, adjusting only for share capital changes as of September 30, not for other capital accretions like half-yearly profits.
- Ensure no exposure is taken beyond prescribed limits in anticipation of future capital infusion.
- Maintain compliance with all statutory and regulatory restrictions listed, including those on advances to directors, shares, and unsecured advances.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Board of Directors of UCBs, Loan sanctioning authorities and investment departments of UCBs
What is the exposure ceiling for an individual borrower under this circular?
The exposure to an individual borrower must not exceed 15% of the bank's capital funds, as per para 2.1.1 of the circular.
Can UCBs adjust exposure limits mid-year based on profits?
No, only accretion to share capital (e.g., as on September 30) can be considered for half-yearly limit adjustments, not half-yearly profits or other capital fund changes.
Does this circular introduce new restrictions beyond the 2011 version?
No, it consolidates existing instructions up to June 30, 2012, without introducing new limits. It updates the previous July 2011 master circular.