What changed
RBI observed that some UCBs were sanctioning high-value loans to PSUs by admitting them as nominal members or otherwise. The circular reiterates that UCBs are meant to meet credit needs of low/middle income groups, small borrowers, agriculture, and small businesses. It advises UCBs, as a matter of principle, to generally not grant large-value loans to PSUs or government undertakings.
What it means for you
UCBs must realign their lending focus away from large-ticket PSU exposures and back to their core cooperative mandate. This will likely reduce concentration risk from PSU lending and reinforce the sector's role in financial inclusion. Banks should review existing PSU loan portfolios and ensure new sanctions comply with this principle.
What you must do
- Review and stop sanctioning large-value loans to PSUs or government undertakings.
- Assess existing PSU loan exposures and plan for orderly reduction if they are large.
- Ensure membership and lending policies align with cooperative principles and RBI guidance.
- Train credit staff on the revised stance and monitor compliance through internal audits.
Who it affects
Primary (Urban) Cooperative Banks, UCB management and credit committees, PSUs seeking loans from UCBs
Does this circular ban all loans to PSUs by UCBs?
No, it advises UCBs to generally not grant large-value loans to PSUs. Small-value loans may still be permissible, but the principle is to avoid large exposures that dilute the cooperative character.
What is the rationale behind this restriction?
UCBs are primarily meant to serve low/middle income groups, small borrowers, agriculture, and small businesses. High-value PSU lending is inconsistent with cooperative principles and undermines their core mandate.
Does this apply to all government undertakings or only central PSUs?
The circular refers to 'Public Sector/Government Undertakings' broadly, covering both central and state-level entities. UCBs should apply the principle to all such undertakings.