Master Circular - Management of Advances - UCBs
UR
- Applies toUrban co-operative banks · read from RBI’s opening lines
- StatusWithdrawn
- Replaced byReserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025 and Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 · withdrawn and repealed 28 November 2025 by RBI’s RBI/2025-26/100, see the notice
- IssuedApr 01, 2025
- Amendmentsnone tracked
- Length43 points in 4 sections · 4 min read
The four dates on this rule
- PublishedApr 01, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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32 of the 43 points name no product and bind every product. All products.
Numbers to remember
| 1 crore rupees | Working capital up to 1 crore rupees, or 5 crore for micro and small firms, may be judged on projected turnover. RBI Para 2 |
| 25 per cent | Working capital is 25 per cent of turnover; the borrower brings 5 and the bank lends at least 20. RBI Para 2 |
| 10 crore rupees | At 10 crore rupees and above, normally 80 per cent is a loan and the rest cash credit. RBI Para 3 |
| 5 crore rupees | From 5 crore rupees of limits, banks seek declarations and exchange borrower information quarterly. RBI Para 5 |
| 2 lakh rupees | A gold bullet loan is capped at 2 lakh rupees at any point of time. RBI Para 7 |
| 12 months | The gold bullet loan runs at most 12 months from sanction. RBI Para 7 |
| 75 per cent | The loan with interest must stay within 75 per cent of the gold's value, or it turns non-performing. RBI Para 7 |
| 4 lakh rupees | A bank meeting its priority sector targets may lend gold bullet loans up to 4 lakh rupees. RBI Para 7 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — firm, or the usual course. RBI’s paragraph softens the duty with a hedging word instead of stating it flat. One reading: It is a firm rule, and only a rare case RBI would accept sits outside it. The other: It is the usual course, and a bank may depart from it for its own recorded reasons.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Must know
1. Turnover method limits
Working capital up to 1 crore rupees, or 5 crore for micro and small firms, may be judged on projected turnover.
2. The 25-5-20 split
Working capital is 25 per cent of turnover; the borrower brings 5 and the bank lends at least 20.
BankPulse example. Suppose a firm projects a turnover of ₹4 crore for the year. Working capital is 25 per cent of that, which is ₹1 crore. The firm brings 5 per cent of turnover as its own money, which is ₹20 lakh. The bank lends at least 20 per cent of turnover, which is ₹80 lakh.
3. Eighty per cent as loan
At 10 crore rupees and above, normally 80 per cent is a loan and the rest cash credit.
4. No objection first
A borrower of another bank cannot be financed without that bank's no objection certificate.
5. Five crore, share notes
From 5 crore rupees of limits, banks seek declarations and exchange borrower information quarterly.
6. Restructuring, not evergreening
Restructuring exists to preserve a unit's value, never to evergreen a problem account.
7. No disguised bridges
The ban cannot be dodged by lending under another name, like notes or bonds.
8. Gold bullet loan terms
A gold bullet loan is capped at 2 lakh rupees at any point of time.
9. Twelve months to repay
The gold bullet loan runs at most 12 months from sanction.
10. Three-quarters cover kept
The loan with interest must stay within 75 per cent of the gold's value, or it turns non-performing.
11. Four lakh for achievers
A bank meeting its priority sector targets may lend gold bullet loans up to 4 lakh rupees.
12. No finance to buy gold
No advance may be given to buy gold in any form, coins and funds included.
13. No loans for savings plans
No loan may be given to buy small savings instruments such as Kisan Vikas Patras.
Do it
1. Policy reviewed yearly
The Board must review the bank's loan policy at least once a financial year.
2. Rates on the wall
The lowest and highest lending rates must be published and shown in every branch.
3. Declare at the counter
A new current account holder must declare his credit facilities at other banks.
4. Insist on audited accounts
A borrower with large limits must produce audited financial statements.
5. Statutory dues watched
Borrowers should pay provident fund and similar dues promptly; unpaid dues signal early sickness.
6. Breaches reported at once
Any crossing of sanction powers must be reported to head office immediately.
7. Watch the end use
Drawings from cash credit and overdraft must stay strictly for the sanctioned purpose.
8. Security checked after
Pledged and hypothecated security must stay untouched after sanction. It must still be worth enough to cover the loan.
9. Advances reviewed regularly
Advances must be reviewed on a regular basis against need and lending norms.
10. Watch large withdrawals
Banks must keep proper watch over clients' requests for large cash withdrawals.
11. Real estate policy first
The Board must approve prudential limits for real estate lending before it happens.
12. A bill discounting policy
The Board must approve a bill discounting policy consistent with working capital policy.
13. Straight to the group
Group lending must be direct; lending through intermediaries is not permitted.
Background
1. Who is covered
This master circular binds every primary urban co-operative bank.
2. Extra credit comes last
Temporary extra credit is considered only after the existing limit is fully used.
3. Rates set by the Board
Lending rates are the bank's own, set with Board approval from its costs.
4. Key facts to borrowers
Loan terms go to the borrower in the key facts statement format.
5. Room for rate rises
A floating rate personal loan needs headroom for a longer term or a bigger instalment.
6. Within delegated powers
No advance beyond delegated powers or without proper credit appraisal.
7. Valuers on a panel
The bank needs a system for realistic property valuation and a panel of valuers.
8. Act on diversion
Diverted funds can bring loan recall, cut limits and penal charges.
9. Sold stock is fraud
Hypothecated stock sold with proceeds kept from the loan account is normally treated as fraud.
10. What diversion means
Using short term working funds for long term ends, against the terms of sanction, is diversion of funds.
11. Credit bureau reporting
Credit information reporting follows the 2025 credit information Directions.
12. Three classes restructure
Standard, sub-standard and doubtful accounts may be restructured.
13. Bridge loans banned
Bridge loans and interim finance to any company are totally prohibited.
14. Repayment source is the test
A loan counts as a bridge when repayment depends on outside funds, not the asset's own earnings.
15. Not for state giants
As a matter of principle, large loans to public sector undertakings are not to be granted.
16. Genuine bills only
Bill discounting is for genuine commercial and trade bills, after proper appraisal.
17. Groups are normal business
Lending to self help groups is normal business under a Board approved policy.
What RBI has fined people for under this rulebook
RBI has imposed 7 monetary penalties on this kind of lender. In each one its own stated reason names the subject of this rulebook. Each one links to the press release it was read from.
This tells you the rulebook RBI named. It does not tell you which of the points on this page was broken, because RBI does not say. Read the order itself before drawing any conclusion about your own bank.
Mar 28, 2025. Kodungallur Town Co-operative Bank Ltd., Kerala — ₹1.00 lakh (Rupees One lakh only) ↗
Mar 27, 2025. NKGSB Co-operative Bank Limited, Mumbai — ₹15.00 lakh (Rupees Fifteen Lakh only) ↗
These come from RBI press releases. The penalty tracker holds them all. It also lists the penalties we could not place on any rulebook, and the reason for each one.