What changed
This master circular updates and consolidates all previous instructions on capital adequacy for UCBs issued up to June 30, 2012, replacing the July 1, 2011 circular. It includes guidelines on share-linking norms, capital adequacy ratios, and risk weights for CRAR computation. The circular also covers returns and annexes on preference shares and long-term subordinated deposits.
What it means for you
UCBs must ensure compliance with updated capital adequacy norms, including maintaining a CRAR of 12% to be exempt from mandatory share-linking. The circular reinforces the Basel I framework, requiring a minimum 8% capital-to-risk-weighted-assets ratio. Banks need to align their capital planning and reporting with these consolidated instructions to avoid regulatory gaps.
What you must do
- Review and update internal capital adequacy policies to align with the consolidated master circular.
- Ensure CRAR is maintained at 12% or above to qualify for exemption from mandatory share-linking norms.
- Verify that share-linking to borrowings is applied correctly: 5% for unsecured, 2.5% for secured borrowings.
- Submit required returns as per the proforma in Annex 2 of the circular.
- Train compliance teams on the updated guidelines, including risk weights and capital for market risk.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Chief Executive Officers of UCBs, Compliance and risk management teams at UCBs, Auditors and regulators overseeing UCBs
What is the minimum capital requirement for a UCB under this circular?
As per Section 11 of the Banking Regulation Act (AACS), the aggregate value of paid-up capital and reserves must be at least ₹1 lakh. Additionally, RBI prescribes minimum entry point capital for new UCBs under Section 22(3)(d).
Are UCBs with a CRAR of 12% exempt from share-linking norms?
Yes, UCBs that maintain a CRAR of 12% on a continuous basis are exempted from mandatory share-linking norms effective November 15, 2010, as per the circular.
What are the share-linking percentages for borrowings?
For unsecured borrowings, 5% of the borrowing amount must be held as shares. For secured borrowings, it is 2.5%. For secured borrowings by SSIs, 2.5% is required, with 1% collected initially and the remaining 1.5% within two years.