What changed
This circular does not introduce new rules but reiterates existing norms from July 2008 and November 2010. It confirms that RBI has urged state governments to amend cooperative acts to remove monetary ceilings on individual shareholding, replacing them with the 5% capital-linked cap. Pending such amendments, UCBs must strictly follow current share linking and shareholding limits.
What it means for you
UCBs must ensure that borrowers' shareholding aligns with loan amounts—2.5% for secured and 5% for unsecured borrowing—and that no member holds more than 5% of paid-up capital. This protects member equity and prevents concentration. UCBs with sustained 12% CRAR remain exempt from mandatory share linking, offering a compliance relief for well-capitalized banks.
What you must do
- Verify that all borrower shareholdings meet the 2.5% (secured) and 5% (unsecured) linking norms.
- Ensure no individual member's shareholding exceeds 5% of total paid-up capital.
- Maintain CRAR at 12% continuously if seeking exemption from share linking norms.
- Track state-level amendments to cooperative acts and adjust policies accordingly.
Who it affects
All Urban Co-operative Banks (UCBs), UCB members/borrowers, State cooperative departments
What are the exact share linking percentages for borrowing?
For secured borrowings, the share linking requirement is 2.5% of the loan amount; for unsecured borrowings, it is 5%.
Can a UCB be exempted from these share linking norms?
Yes, if the UCB maintains a Capital to Risk Weighted Assets Ratio (CRAR) of 12% on a continuous basis, it is exempt from mandatory share linking as per earlier instructions.
What is the cap on individual shareholding in a UCB?
An individual member's shareholding is restricted to 5% of the total paid-up share capital of the UCB.