XX, 2025

Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025

Introduction

Urban Co-operative Banks (UCBs), in the course of financial intermediation, are exposed to various financial and non-financial risks, of which credit risk is the one of the most significant risks. If not managed effectively, credit risk may have ramifications for a range of other risk categories too. As credit exposures of UCBs encompass varied sectors, borrower types and products with their own idiosyncratic complexities as well as systemic implications due to interconnectedness among themselves, credit risk management of UCBs involve a range of prudential tools, including statutory and regulatory restrictions / prohibitions on certain activities. Recognising this, the Reserve Bank has, from time to time, issued guidelines to strengthen credit risk management practices.

Accordingly, in exercise of powers conferred by sections 21, 35A and 56 of the Banking Regulation Act, 1949, the Reserve Bank being satisfied that it is necessary and expedient in the public interest to do so, hereby issues these Directions hereinafter specified.

Chapter-I - Preliminary

A. Short title and Commencement

1. These directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025.

2. These directions shall come into force with immediate effect.

B. Applicability

3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as ‘UCBs/banks’ and individually as a ‘UCB/bank’).

In this context, urban co-operative banks shall mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

C. Definitions

4. 1) In these Directions, unless the context otherwise requires,

i) 'Cash credit' means a facility, under which a customer is allowed an advance up to the credit limit against the security by way of hypothecation / pledge of goods, book debts, standing crops, etc. The facility is a running account and 'Drawing Power - DP' is periodically determined with reference to the value of the eligible current assets. The outstanding amount is repayable on demand.

ii) ‘Current Account’ means A form of demand deposit account wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount, and shall also be deemed to include other deposit accounts which are neither Savings nor Term deposit account.

iii) 'Major shareholder' shall mean a person holding 10 percent or more of the paid-up share capital or rupees five crore in paid-up shares, whichever is less.

iv) ‘Overdraft’ means a facility, under which a customer is allowed to draw an agreed sum (credit limit) in excess of credit balance in their account. The overdraft facility may be secured (against fixed / term deposits and other securities, like small saving instruments, surrender value of insurance policies, etc.) or clean (i.e. without any security). The overdraft facility might be granted on their current account, savings deposits account or temporary overdraft on credit accounts.

v) A person shall be deemed to be a relative of another, if and only if:-

a) They are members of a Hindu Undivided Family (HUF); or

b) They are husband and wife; or

c) The one is related to the other (or vice-versa) in the manner indicated below:

• Father (including step-father)

• Mother (including step-mother)

• Son (including step-son)

• Son’s wife

• Daughter (including step-daughter)

• Daughter’s husband

• Brother (including step-brother)

• Brother’s wife

• Sister (including step-sister)

• Sister’s husband

vi) 'Revaluation Reserve' means a reserve created on the revaluation of assets or net assets represented by the surplus of the estimated replacement cost or estimated market values over the book values thereof.

2) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949, or the Reserve Bank of India Act, 1934 and rules / regulations made thereunder, or any statutory modification or re-enactment thereto or in other relevant regulations issued by the Reserve Bank or as used in commercial parlance, as the case may be.  

Chapter-II - Board Approved Policies

5. The bank shall put in place a comprehensive Board approved policy on Credit Risk Management. The policy shall, inter alia, cover aspects related to valuation of properties including empanelment of valuers, and review/ renewal of credit facilities. The specific aspects to be addressed in these policies are also detailed in the relevant paragraphs of this Directions.

6. Banks are expected to lay down, with the approval of their boards, transparent policies and guidelines for credit dispensation, in respect of each broad category of economic activity, keeping in view the credit exposure norms and various other guidelines issued by the Reserve Bank of India from time to time.

In order to ensure that the loan policy of the bank reflects approved internal risk appetite and remains in alignment with the extant regulations, it shall be reviewed by the Board at least once in a financial year.

Chapter-III - Statutory Restrictions

7. 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.

8. Advances against Bank's Own Shares

In terms of Section 20(1)(a) of the Banking Regulation Act, 1949, a primary (urban) co- operative bank cannot grant loans and advances on the security of its own shares.

9. Restrictions on Power to Remit Debts

1) Section 20A(1) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) stipulates that a UCB shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by -

i) any of its past or present directors, or

ii) any firm or company in which any of its directors is interested as director, partner, managing agent or guarantor, or

iii) any individual, if any of its directors is his partner or guarantor.

10. In terms of Section 20A(2) of the said Act, any remission made in contravention of the provisions of sub-section (1) above shall be void and of no effect.

Chapter-IV - Regulatory Restrictions

A. Granting Loans and Advances to Directors and their Relatives

11. UCBs shall not make, provide or renew any loans and advances or extend any other financial accommodation to or on behalf of their directors or their relatives, or to the firms / companies / concerns in which the directors or their relatives are interested (collectively called as 'director related loans'). Further, the directors or their relatives or the firms / companies / concerns in which the directors or their relatives are interested shall also not stand as surety / guarantor to the loans and advances or any other financial accommodation sanctioned by UCBs. ‘Advances’ for the purpose shall include all types of funded / working capital limits such as cash credits, overdrafts, credit cards, etc.

12. The following categories of Director related loans are exempted from the purview of the above instructions:

i) Regular employee-related loans to staff Directors, if any, on the Boards of UCBs;

ii) Normal loans, as applicable to members, to the Directors on the Boards of Salary Earners' UCBs;

iii) Normal employee-related loans to Managing Directors / Chief Executive Officers of UCBs;

iv) Loans to Directors and their relatives against Government Securities, Fixed Deposits and Life Insurance policies standing in their own name.

13. Explanation: For the purpose of paragraph 11 and 12 –

1) The term 'any other financial accommodation' shall include funded and non- funded credit limits and underwritings and similar commitments, as under:

i) The funded limits shall include loans and advances by way of bill / cheque purchase / discounting, pre-shipment and post-shipment credit facilities and deferred payment guarantee limits extended for any purpose including purchase of capital equipment and acceptance limits in connection therewith sanctioned to borrowers, and guarantees by issue of which a bank undertakes financial obligation to enable its constituents to acquire capital assets. It shall also include investments which are in the nature of / in lieu of credit.

ii) The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (i) above, underwritings, and similar commitments. It shall also include off-balance sheet exposure in the form of derivatives.

2) The word 'relative' shall have the meaning as specified under Definitions in Chapter I of this direction.

3) The word 'interested' shall mean the director of the UCB or his relative, as the case may be, being a director, managing agent, manager, employee, proprietor, partner, coparcener or guarantor, as the case may be, of the firm / company / concern [including HUF]:

Provided that a Director of a UCB or his relative shall also be deemed to be interested in a company, being the subsidiary or holding company, if he / she is a Director, Managing Agent, Manager, employee or guarantor of the respective holding or subsidiary company:

Provided further that a director of a UCB shall also be deemed to be interested in a company / firm if he / she holds substantial interest in or is in control of the company / firm or in a company, being the subsidiary or holding company, if he / she holds substantial interest in or is in control of the respective holding or subsidiary company:

Provided further that a relative of a director of a UCB shall also be deemed to be interested in a company / firm if he / she is a major shareholder or is in control of the company / firm or in a company, being the subsidiary or holding company, if he / she is a major shareholder or is in control of the respective holding or subsidiary company.

4) The term 'control' shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in another manner.

5) The term 'major shareholder' shall mean a person holding 10 per cent or more of the paid up share capital.

14. UCBs shall be guided by Master Direction – Reserve Bank of India (Filing of Supervisory Returns) Directions – 2024 dated February 27, 2024, as amended from time to time, for submission of return regarding Director-related loans.

B. Maximum Ceiling on Advances to Nominal Members

15. UCBs are allowed to grant loans to nominal members. As per model bye-laws no. 10 of a Primary (Urban) Co-operative Bank, Nominal members are defined as under:

i) Any person who is co-parcener or who desires to stand surety for a borrowing member of the bank or who desires to borrow occasionally for a temporary period against certain tangible securities such as gold and silver ornaments, fixed deposit receipts, life insurance policies and government and other securities may be enrolled as a nominal member upon his application in a prescribed form on payment of ₹ ........ as non-refundable entrance fee provided he resides or is gainfuIly engaged in any occupation within the area of operation of the bank.

ii) The nominal member shall not be entitled:

a) to receive a share certificate;

b) to receive audited accounts and annual report;

c) to attend, to participate and to vote in the General Meeting and/or Special General Meeting of the Bank; and

d) to receive dividend.

iii) A co-operative society registered under any law shall not be eligible and as such shall not be admitted to nominal membership in terms of the provisions of this by-law.

16. UCBs may sanction loans for short/temporary period and for purchase of consumer durables articles such as television set, refrigerator, two-wheelers, etc., to individuals who are not already regular members of the bank by admitting such borrowers as nominal members subject to the following conditions:

i) The total number of nominal members should not, at any point of time, exceed 20% of the regular members;

ii) Non-borrower sureties and coparceners who are admitted as nominal members should be excluded for the purpose of computation of the above ceiling; and

iii) The ceiling on advances to nominal members is as under

C. Restriction on Advances to Defaulters of Statutory Dues

17. According to the law, any provident fund contributions that have been deducted from employees’ wages but remain unpaid to the Commissioner for more than six months will have the highest priority as a first charge on the assets of the employer, in the event that the borrowing employer becomes insolvent or is being wound up. In the circumstances, primary (urban) cooperative banks shall safeguard their interest vis-à-vis such statutory dues.

18. Therefore, banks shall satisfy themselves that there are no arrears of Provident Fund and other statutory dues of the borrowers by obtaining a declaration from them that all such dues have been duly paid. Proof in this regard may be called for only in cases where banks have reason to doubt the borrowers' declaration. Even where a proof is required, it is not necessary to insist on a certificate from the Regional Provident Fund Commissioner; production of a receipt evidencing the payment of the dues or a certificate from the auditors of the borrower or any other similar proof may be considered sufficient. In the case of stressed borrowers where there are arrears for reasons beyond the control of the borrowers, banks may continue to consider such cases on merits.

19. UCBs shall ensure that borrowers enjoying credit facilities, pay the provident fund payments and similar other statutory dues promptly. The non-payment of statutory dues by the borrowers is one of the symptoms of incipient sickness of an industrial unit. Therefore, it is in the interest of both the lender and borrower to give high priority to the clearance of these dues. Apart from insisting on the borrowers to indicate a definite programme for clearance of arrears, UCBs shall consider suitable restrictions on the outflow of funds. UCBs shall incorporate an appropriate declaration in their application forms for grant / renewal / enhancement of credit facilities so as to ensure that the position regarding the statutory dues is disclosed therein. In respect of the corporate borrowers and non-corporate borrowers, the amount of statutory dues shall normally be reflected in their audited annual accounts. In case audited accounts do not indicate the position clearly, a certificate shall be obtained from the Chartered Accountant for this purpose.

Chapter-V - Credit Administration

A. No Objection Certificate

20. UCBs shall not finance a borrower already availing credit facility from another bank without obtaining a 'No Objection Certificate' from the existing financing bank.

B. Opening of Current Account

21. Keeping in view the importance of credit discipline, at the time of opening of current accounts, UCBs shall:

i) insist on a declaration from the account holder to the effect that he is not enjoying any credit facility with any other commercial bank or obtain a declaration giving particulars of credit facilities enjoyed by him with any other commercial bank/s.

ii) ascertain whether he / she is a member of any other co-operative society / bank; if so, the full details thereof such as name of the society / bank, number of shares held, details of credit facilities, such as nature, quantum, outstanding, due dates etc. shall be obtained.

22. In case the borrower is already enjoying any credit facility from any other commercial / co- operative bank, the UCB opening a current account shall duly inform the lending bank(s) concerned and also specifically insist on obtaining a 'No Objection Certificate' from them. In case of a prospective customer who is a corporate or large borrower enjoying credit facilities from more than one bank, the banks may inform the consortium leader, if under consortium, and the banks concerned, if under multiple banking arrangement. In case a facility has been availed from a co- operative bank / society, it is essential for the UCB to comply with the requirements of the Co- operative Societies Act / Rules of the state concerned in regard to membership and borrowings.

23. UCBs may open current accounts of prospective customers in case no response is received from the existing bankers after a minimum waiting period of a fortnight. If a response is received within a fortnight, UCBs shall assess the situation with reference to information provided on the prospective customer by the bank concerned and are not required to solicit a formal no objection, consistent with true freedom to the customer of banks as well as needed due diligence on the customer by the bank.

C. Certification of Accounts of Non-Corporate Borrowers by Chartered Accountants

24. As per the Income Tax Act, 1961, filing of audited balance sheet and Profit & Loss Account is mandatory for certain types of non-corporate entities. Therefore, the UCBs shall insist on the audited financial statements from the borrowers enjoying large limits; since such borrowers would, in any case, be submitting audit certificate to the income-tax authorities, based on audit of their books of accounts by a Chartered Accountant.

D. Sanction of Advances

D.1 Irregularities / Deficiencies in Credit Sanction

25. UCBs shall take suitable precautions to avoid irregular practices such as sanctioning advances beyond discretionary powers and / or without proper credit appraisal in order to minimise chances of frauds.

D.2 Delegation of Powers

26. 1) The Board of Directors shall delegate specific powers to the Branch Managers and other functionaries at the Head Office level as also to the Chairman in the matter of sanction of advances and expenditure. A system shall also be introduced to ensure that powers are exercised within the limits prescribed and any transgressions are immediately reported to Head Office.

2) The internal inspectors shall examine during the course of inspection of branches whether powers have been exercised properly and any unauthorised exercise of powers shall immediately be brought to the notice of Head Office. Similarly, sanctions beyond discretionary powers by the Chairman, Chief Executive Officer and other executives at the Head Office shall also be reported to the Board of Directors.

D.3 Oral Sanction

27. The higher authorities at various levels shall desist from the unhealthy practice of conveying sanction of advances orally or on telephone.

D.4 Proper Record of Deviations

28. 1) Only in exigencies, where sanctions are made on telephone / oral instructions of higher functionaries or sanctions beyond discretionary powers have to be resorted to, the following steps shall be taken:

i) Record of such instructions / sanctions shall be maintained by the sanctioning / disbursing authorities explaining the circumstances under which sanctions were made.

ii) Written confirmation of the competent sanctioning authority shall be obtained by the disbursing authority / official within a week / fortnight.

iii) Sanctions within discretionary powers shall also be reported to Head Office within a stipulated time and Head Office shall meticulously follow up receipt of such returns.

iv) Head Office shall diligently scrutinise the statements / returns and shall initiate stringent action against erring functionary(s) if he is / they are / found to have indulged in unauthorised sanctioning.

2) Officials shall exercise powers delegated to them judiciously and shall not exceed their discretionary powers for granting loans and advances. Violations, if any, in this regard shall be viewed seriously and the guilty shall be punished suitably.

E. Monitoring Operations in Loan Accounts

29. Post-Sanction Monitoring

1) It is the primary responsibility of UCBs to be vigilant and ensure proper end use of bank funds / monitor the funds flow. It is, therefore, necessary for UCBs to evolve such arrangements as considered necessary to ensure that drawals from cash credit / overdraft accounts are strictly for the purpose for which the credit limits are sanctioned by them.

2) Post sanction follow-up of loans and advances shall be effective so as to ensure that the security obtained from borrowers by way of hypothecation, pledge, etc. are not tampered with in any manner and are adequate.

3) Accounts showing sign of turning into NPAs: UCBs shall put in place more stringent safeguards, especially where accounts show sign of turning into NPAs. In such cases UCBs shall strengthen their monitoring system by resorting to more frequent inspections of borrowers' godowns, ensuring that sale proceeds are routed through the borrower's accounts maintained with the UCB and insisting on pledge of the stock in place of hypothecation.

4) Drawals against clearing cheques shall be sanctioned only in respect of first class customers and even in such cases the extent of limits and the need therefore shall be subjected to thorough scrutiny and periodic review. UCBs shall not issue banker's cheques / pay orders / demand drafts against instruments presented for clearing, (unless the proceeds thereof are collected and credited to the account of the party) or to borrowers whose accounts are already overdrawn or likely to be overdrawn with the issue of such instruments.

5) Drawals against clearing instruments shall be normally confined to bank drafts and Government cheques and only to a limited extent against third party cheques.

6) Cheques against which drawals are allowed, shall represent genuine trade transactions and strict vigilance shall be observed against assisting kite-flying operations.

30. Responsibility

1) The primary responsibility for preventing misuse of funds rests with the management of UCBs. UCBs shall, therefore, take appropriate steps to review and tighten their internal administration and control measures so as to eliminate the scope for misuse / diversion of funds and malpractices.

2) UCBs shall take serious view of instances of misuse of power, corruption and other malpractices indulged by the members of staff and erring staff members shall be given punishments befitting the seriousness of the irregularity. Quick disposal of enquiries by the banks and award of deterrent punishment would be necessary in all such cases.

F. Annual Review of Advances

31. For an effective monitoring of the advances, it is imperative for the UCBs to undertake an exercise for review of the advances on a regular basis. Apart from the usual objective of such a review of assessing the quality of operation, safety of funds, etc. the review shall specifically attempt to make an assessment of the working capital requirements of the borrower based on the latest data available, whether limits continue to be within the need-based requirements and according to the UCB's prescribed lending norms.

G. Diversion of Funds

32. UCBs shall have a mechanism for proper monitoring of the end use of funds. Wherever diversion is observed, they shall take appropriate action including recalling the loans, reduction of sanctioned limits, imposing penal charges etc. to protect the UCB's interest. UCBs shall keep a proper vigil over requests of their clients for cash withdrawals from their accounts for large amounts. Whenever stocks under hypothecation to cash credit and other loan accounts are found to have been sold but the proceeds thereof not credited to the loan account, such action shall normally be treated as a fraud. In such cases, UCBs shall take immediate steps to secure the remaining stock so as to prevent further erosion in the value of the available security as also other action as warranted.

33. Diversion of funds would be construed to include any one of the under-noted occurrences:

1) Utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanctions;

2) deploying borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned;

3) transferring funds to the subsidiaries / group companies or other corporates by whatever modalities;

4) routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender;

5) investment in other companies by way of acquiring equities / debt instruments without approval of lenders;

6) shortfall in deployment of funds vis-à-vis the amounts disbursed / drawn, and the difference not being accounted for.

34. Siphoning of funds shall be construed to have occurred if any funds borrowed are utilised for purposes unrelated to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgement of the lenders based on objective facts and circumstances of the case.

H. End-use of Funds

35. In cases of project financing, UCBs shall seek to ensure end use of funds by, inter alia, obtaining certification from the Chartered Accountants for the purpose. In case of short-term corporate / clean loans, such an approach ought to be supplemented by 'due diligence' on the part of lenders themselves, and to the extent possible, such loans shall be limited to only those borrowers whose integrity and reliability were above board. UCBs, therefore, shall not depend entirely on the certificates issued by the Chartered Accountants but strengthen their internal controls and the credit risk management system to enhance the quality of their loan portfolio. Needless to say, ensuring end-use of funds by UCBs shall form a part of their loan policy document for which appropriate measures shall be put in place.

36. The following are the illustrative measures that could be taken by the lenders for monitoring and ensuring end-use of funds:

i) Meaningful scrutiny of quarterly progress reports / operating statements / balance sheets of the borrowers;

ii) Regular inspection of borrowers' assets charged to the lenders as security;

iii) Periodic scrutiny of borrowers' books of accounts and the no-lien accounts maintained with other banks;

iv) Periodic visits to the assisted units;

v) System of periodical stock audit, in case of working capital finance;

vi) Periodic comprehensive management audit of the 'Credit' function of the lenders, so as to identify the systemic weaknesses in the credit-administration.

Chapter-VI - Legal Entity Identifier (LEI) for Borrowers

37. The Legal Entity Identifier (LEI) code is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide.

38. It is advised that regulated entities (REs) shall ensure that non-individual borrowers with aggregate exposure of ₹5 crore and above from banks (Scheduled Commercial Banks (excluding Regional Rural Banks), Local Area Banks, Small Finance Banks, and Primary (Urban) Co-operative Banks) and Financial Institutions (All India Financial Institutions and NBFCs (including HFCs)) obtain LEI codes

Explanation: 'Exposure' for this purpose shall include all fund based and non-fund based (credit as well as investment) exposure of banks / FIs to the borrower. Aggregate sanctioned limit or outstanding balance, whichever is higher, shall be reckoned for the purpose. Lenders shall ascertain the position of aggregate exposure based on information available either with them, or CRILC database or declaration obtained from the borrower

39. Borrowers who fail to obtain LEI codes from an authorised Local Operating Unit (LOU) shall not be sanctioned any new exposure nor shall they be granted renewal / enhancement of any existing exposure. However, Departments / Agencies of Central and State Governments (not Public Sector Undertakings registered under Companies Act or established as Corporation under the relevant statute) shall be exempted from this provision.

Explanation: A government agency is an administrative set up of the government, responsible for certain area/s of activity, e.g., ISRO, BIS, DGCA, etc.

Banks shall encourage large borrowers to obtain LEI for their parent entity as well as all subsidiaries and associates.

40. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In India, LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the Clearing Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank as issuer of LEI under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local Operating Unit (LOU) in India for issuance and management of LEI.

41. The rules, procedure and documentation requirements maybe ascertained from LEIIL.

42. After obtaining LEI code, banks shall also ensure that borrowers renew the codes as per GLEIF guidelines.

Chapter-VII - Valuation of Properties - Empanelment of Valuers

43. The banks shall be guided by the following aspects while formulating a policy on valuation of properties and appointment of valuers:

44. Policy for valuation of properties

1) The banks shall have a Board approved policy in place for valuation of properties including collaterals accepted for their exposures.

2) The valuation shall be done by professionally qualified independent valuers i.e. the valuer shall not have a direct or indirect interest.

3) The banks shall obtain minimum two Independent Valuation Reports for properties valued at ₹50 crore or above.

45. Revaluation of bank’s own properties

In addition to the above, the banks may keep the following aspects in view while formulating policy for revaluation of their own properties:

1) The extant guidelines on Capital Adequacy permit banks to include revaluation reserves at a discount of 55 per cent as a part of Tier II Capital. In view of this, it is necessary that revaluation reserves represent true appreciation in the market value of the properties and banks have in place a comprehensive policy for revaluation of fixed assets owned by them. Such a policy should inter alia cover procedure for identification of assets for revaluation, maintenance of separate set of records for such assets, the frequency of revaluation, depreciation policy for such assets, policy for sale of such revalued assets etc. The policy should also cover the disclosure required to be made in the 'Notes on Account' regarding the details of revaluation such as the original cost of the fixed assets subject to revaluation and accounting treatment for appreciation / depreciation etc.

2) As the revaluation should reflect the change in the fair value of the fixed asset, the frequency of revaluation should be determined based on the observed volatility in the prices of the assets in the past. Further, any change in the method of depreciation should reflect the change in the expected pattern of consumption of the future economic benefits of the assets. The banks should adhere to these principles meticulously while changing the frequency of revaluation / method of depreciation for a particular class of asset and should make proper disclosures in this regard.

46. Policy for Empanelment of Independent valuers

1) The banks shall have a procedure for empanelment of professional valuers and maintain a register / record of 'approved list of valuers'.

2) The banks may prescribe a minimum qualification for empanelment of valuers. Different qualifications may be prescribed for different classes of assets (e.g. land and building, plant and machinery, agricultural land, etc.). While prescribing the qualification, banks shall may take into consideration the qualifications prescribed under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957.

47. The banks shall also be guided by the relevant Accounting Standard issued by the Institute of Chartered Accountants of India.

Chapter-VIII - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI

48. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Government Company licensed under section 25 of the Companies Act 1956 has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

49. It is to be noted that initially transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property. It may be noted that under the provisions of Section 23 of the SARFAESI Act , particulars of any charge creating security interest over property is required to be filed with the Registry within 30 days from the date of creation.

50. The Government of India has issued a Gazette Notification dated January 22, 2016 for filing of the following types of security interest on the CERSAI portal:

1) Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds.

2) Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debts including book debts or receivables, whether existing or future.

3) Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature.

4) Particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial or a part thereof by an agreement or instrument other than mortgage. 

Chapter-IX - Loan System for Delivery of Bank Credit

51. In the case of borrowers enjoying working capital credit limits of ₹10 crore and above from the banking system, the loan component shall normally be 80 percent and the remaining Cash Credit component. UCBs have been given freedom to change the composition of working capital by increasing the cash credit component beyond 20 percent or increase the loan component beyond 80 percent, as the case may be, if they so desire. UCBs shall appropriately price each of the two components of working capital finance, taking into account the impact of such decisions on their cash and liquidity management.

52. In the case of borrowers with working capital (fund based) credit limit of less than ₹10 crore, UCBs shall persuade them to go in for the Loan System by offering an incentive in the form of lower rate of interest on the 'loan component' as compared to the 'cash credit component' The actual percentage of 'loan component' in these cases shall be settled by the UCB with its borrower clients.

A. Ad hoc Credit Limit

53. The release of ad hoc / additional credit for meeting temporary requirements shall be considered by the financing UCB only after the borrower has fully utilised / exhausted the existing limit. As certain concerns were observed with regard to practices followed by banks in this regard, it has been reiterated vide circular DoS.CO.PPG.BC.1/11.01.005/2020-21 dated August 21, 2020, that UCBs are expected to have a detailed Board approved policy on methodology and periodicity for review / renewal of credit facilities within the overall regulatory guidelines and adhere to the same strictly. Further, timely and comprehensive review / renewal of credit facilities shall be an integral part of the Board approved loan policy and credit risk management framework, and UCBs shall avoid frequent and repeated ad-hoc / short review / renewal of credit facilities without justifiable reasons. UCBs are also advised to capture all the data relating to regular as well as ad-hoc / short review / renewal of credit facilities in their core banking systems / management information systems and make the same available for scrutiny as and when required by any audit or inspection by Auditors / Reserve Bank. Moreover, the processes governing review / renewal of credit facilities shall be brought under the scope of concurrent / internal audit / internal control mechanism of UCBs with immediate effect.

B. Sharing of Working Capital Finance

54. In respect of consortium lending, the level of individual bank's share in Cash Credit and Loan Component shall be governed by the norm for single / group borrowers’ credit exposure.

C. Rate of Interest

55. UCBs are allowed to fix separate lending rates for 'loan component' and 'cash credit component'.

D. Period of Loan

56. The minimum period of the loan for working capital purposes shall be fixed by UCBs in consultation with borrowers. UCBs shall decide to split the loan component according to the need of the borrower with different maturity bases for each segment and allow roll over.

E. Export Credit

57. In respect of borrowers enjoying export credit limit, the bifurcation of the working capital limit into loan and cash credit components, would be effected after excluding the export credit limits (pre- shipment and post-shipment).

F. Bills Limit

58. Bills limit for inland sales shall be fully carved out of the 'loan component'. Bills limit also includes limits for purchase of third party (outstation) cheques / bank drafts. UCBs shall satisfy themselves that the bills limit is not mis-utilised.

59. UCBs shall lay down policy guidelines for periodic review of the working capital limit and the same shall be scrupulously adhered to.

Chapter-X - Repeal and other provisions

A. Repeal and saving

60. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Credit Risk Management as applicable to Urban Co-operative Banks stands repealed, as communicated vide notification dated XX, 2025. The Directions, instructions and guidelines already repealed shall continue to remain repealed.

61. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions.

B. Application of other laws not barred

62. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force.

C. Interpretations

63. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding.