Exposure Norm/Other Restrictions for Urban Cooperative Banks (UCBs)

RBI on 16 January, 2024, issued guidelines on Exposure Norm and Statutory/Other Restrictions for Urban Cooperative Banks (UCBs) vide circular RBI/2023-24/114, DoR.CRE.REC.71/07.10.002/2023-24 to address the issue of increasing non-performing assets and associated risks in lending.

The RBI had previously allowed UCBs to have exposures of up to 15% and 40% of their capital funds to a single borrower and a group of borrowers, respectively. On review RBI made changes to the exposure limits for urban cooperative banks (UCBs). The new limits allowed a single borrower to have a maximum exposure of 15% of tier-1 capital, while a group of borrowers can have a maximum exposure of 25%. The UCBs were required to reduce their current exposures that exceed the revised limits to comply with the new limits by March 31, 2023.

Under the present guidelines, UCB’s are instructed to update their exposure limits for all new exposures taken after March 13, 2020. This update should be approved by the Board of Directors. The credit and investment exposure should not exceed 15% of Tier-1 capital for individual or group borrowers, as defined by the UCB. For groups of connected borrowers or parties who are businesses with common partners engaged in the same line of business, the exposure limit should not exceed 25%.

The limit for loans related to Housing, Real Estate, and Commercial Real Estate is set at 10% of their total assets. Additionally, there is an extra 5% allocation specifically for Housing, subject to eligibility.

Ceiling on unsecured loans with or without surety for individual and group borrowers, capping it at 10% of total assets as of March 31 of preceding financial year.

Consequent upon amendment of Banking Regulation Act, 1949 by the Banking Regulation (Amendment) Act, 2020, section 20 of the principal Act has become applicable to UCBs. According to which it is prohibited for UCB’s to provide loans and advances using their own shares as collateral. 

UCB’s can only provide financing to its members, and non-banking financial companies (NBFCs) can only become members if their primary business is hire-purchase/leasing, and after receiving approval from the Registrar of Cooperative Society.

The circular sets forth the activities that qualify and do not qualify for financing by an NBFC that is primarily involved in hire-purchase/leasing, along with its guidelines.

Scheduled UCB’s may rediscount bills discounted by NBFC’s with a proven history in financing commercial vehicles, two-wheelers, and three-wheelers. These bills are drawn by manufacturers on dealers and represent legitimate transactions that can be verified using chassis/engine numbers.

UCB’s may provide loans to Self Help Groups and Joint Liability Groups, with the lending guidelines provided in the circular.

This circular shall apply to all Urban Primary Co-operative Banks (UCB).