What changed
RBI modified para 1 of Annex II of its July 15, 2008 circular on capital instruments for UCBs. Previously, LTD issuance was restricted; now UCBs can issue LTDs to both members and non-members, including those outside their operational area. The change requires compliance with bye-laws, cooperative society acts, and approvals from RBI and the relevant Registrar of Cooperative Societies.
What it means for you
This modification gives UCBs a broader base to raise long-term funds for capital adequacy, as LTDs can now be sourced from non-members and external areas. It enhances flexibility in augmenting lower Tier II capital, which can strengthen the capital base without diluting ownership. Banks must ensure strict adherence to regulatory and statutory approvals to qualify for Tier II treatment.
What you must do
- Review and update your UCB's policy on Long Term Deposits to include issuance to non-members and outside area of operation.
- Obtain necessary approvals from RBI and the concerned Registrar of Cooperative Societies before issuing LTDs.
- Ensure LTD terms comply with the conditions specified in the July 15, 2008 circular for eligibility as lower Tier II capital.
- Train staff on the revised eligibility criteria and documentation for LTDs to avoid compliance gaps.
Who it affects
Primary (Urban) Co-operative Banks, UCB treasuries and capital planning teams, Registrars of Cooperative Societies, RBI's Urban Banks Department
Can UCBs issue LTDs to anyone now?
Yes, UCBs can issue LTDs to both members and non-members, including those outside the bank's area of operation, subject to compliance with bye-laws, cooperative acts, and approvals from RBI and the Registrar.
Will all LTDs automatically count as Tier II capital?
No, only LTDs that meet the terms and conditions outlined in the July 15, 2008 circular will be eligible for treatment as lower Tier II capital. Banks must ensure full compliance.
Do we need fresh RBI approval for each LTD issuance?
The circular states that LTD issuance requires approval from RBI and the concerned Registrar. Banks should seek specific guidance from RBI on whether a one-time or per-issuance approval is needed.