RBI/2008-09/367

The Chief Executive Officers of
All Primary (Urban) Co-operative Banks

Dear Sir/Madam,

Investments in Non-SLR securities by primary (urban) cooperative banks

Please refer to the guidelines on the captioned subject issued vide our circular UBD BPD PCB Cir 14/16.20.00/2003-04 dated September 18, 2007.

2. On the basis of representations received from banks and their Federations,  the existing guidelines have been reviewed and it has been decided as under:

i)          Prudential Limit

The Non-SLR investments will continue to be limited to 10% of a bank’s total deposits as on March 31 of the previous year.

ii)         Instruments

UCBs may invest in the following instruments:

iii)        Restrictions

(a) Investment in perpetual debt instruments is not permitted.

(b) Investment in unlisted securities should be subject to a minimum rating prescribed at (ii) above and should not exceed 10% of the total Non-SLR investments at any time. Where banks have already exceeded the said limit, no further investment in such securities will be permitted.

(i) All transactions for acquisition / sale of non-SLR investments in secondary market may be undertaken only with commercial banks / primary dealers as counterparties.

iv)        Policy

The banks should review their investment policy and ensure that it provides for the nature and extent of investments intended to be made in Non-SLR instruments now permitted, the risk parameters and cut-loss limits for holding / divesting the investments. The banks should put in place proper risk management systems for capturing and analyzing the risk in respect of Non-SLR investments and taking remedial measures in time.

v)    Review

The Boards should review the following aspects of Non-SLR investment at least at half-yearly intervals: Total business (investment and divestment) during the reporting period.

1. Compliance with prudential limits prescribed for non-SLR investment.
2. Compliance with the prudential guidelines issued by Reserve Bank on non-SLR securities.
3. Rating migration of the issuers/issues held in the bank's books and consequent diminution in the portfolio quality.
4. Extent of non-performing investments in the non-SLR category and sufficient provision thereof.

vi)        Disclosure

The banks should disclose the details of the issuer-wise composition of Non-SLR investments and the non-performing investments in the 'Notes on Accounts' of the balance sheet, as indicated in the Annex.

3. The guidelines on placement of deposits by UCBs with other banks are being issued separately.

Yours faithfully,

(A. K. Khound)
Chief General Manager in-Charge

Encl: 1.

Annex

Prudential guidelines on management of the Non-SLR investment

portfolio by urban co-operative banks – Disclosure requirements

Urban co-operative banks should make the following disclosures in the ‘Notes on Accounts’ of the balance sheet in respect of their non-SLR investment portfolio.

i) Issuer composition of Non SLR investments

(Rs. in crore)

ii) Non performing Non-SLR investments