What changed
Previously, contributions by UCBs to eligible funds for PSL shortfalls were counted against the 15% single and 25% group exposure limits. Now, these contributions are excluded from those exposure calculations. Additionally, RBI clarified that such contributions attract a 100% risk weight for capital adequacy, falling under 'all other assets'.
What it means for you
UCBs can now channel PSL shortfall funds to designated institutions without breaching exposure norms, easing a key compliance constraint. The 100% risk weight ensures capital is held against these contributions, maintaining prudential safeguards. This balances PSL compliance with risk management for urban co-operative banks.
What you must do
- Update internal exposure limit calculations to exclude PSL shortfall contributions to NABARD, NHB, SIDBI, and MUDRA.
- Reclassify these contributions as 'all other assets' with a 100% risk weight in capital adequacy computations.
- Review and adjust PSL compliance strategies to leverage the new exemption without increasing counterparty risk.
- Communicate the changes to risk and compliance teams for immediate implementation.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Risk management departments of UCBs, Compliance officers handling PSL targets, Treasury teams managing fund contributions
Does this circular apply to all UCBs or only certain types?
It applies to all Primary (Urban) Co-operative Banks other than Salary Earners’ Banks, as specified in the title.
What is the effective date of these instructions?
The instructions are applicable with immediate effect from June 9, 2025.
Are contributions to entities other than NABARD, NHB, SIDBI, and MUDRA also covered?
Yes, the circular includes contributions to any other entity specified by RBI, as per the Master Direction on PSL.