Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs - ఆర్బిఐ - Reserve Bank of India
Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs
RBI/2011-12/37 July 1, 2011 The Chief Executive Officers Madam / Dear Sir, Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs Please refer to our Master Circular UBD. PCB. MC. No. 1 / 13.05.000 / 2010-11 dated July 1, 2010 on the captioned subject (available at RBI website www.rbi.org.in). The enclosed Master Circular consolidates and updates all the instructions / guidelines issued on the subject upto June 30, 2011 and listed in the Appendix. Yours faithfully (Uma Shankar) Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs Contents
1.1 As a prudential measure aimed at better risk management and avoidance of concentration of credit risk, the primary (urban) co-operative banks have been advised to fix limits on their exposure -
1.2 In addition, these banks are also required to observe certain statutory and regulatory restrictions in respect of :
1.3 Currently operative instructions on all these aspects are detailed in the following paragraphs. 2.1 Exposure Ceiling to Individual / Group Borrowers 2.1.1 Primary (urban) co-operative banks are required to fix, with the approval of their Board of Directors, exposure ceiling in relation to bank's capital funds. The exposure for the purpose shall comprise both credit exposure (loans and advances and investment exposure (Non SLR) as detailed at para 2.2.2(B) so that -
2.1.2 The exercise of computing the exposure ceilings may be conducted every year after the finalisation and audit of balance sheet of the bank and the exposure ceilings may be advised to the loan sanctioning authorities and the investment department in the bank. In view of the linking of shareholding to lending, accretion to or reduction in the share capital after the balance sheet date, may be taken into account for determining exposure ceiling at half-yearly intervals, with the approval of their Board of Directors. Accordingly banks may, if they so desire, fix a fresh exposure limit taking into account the amount of share capital available as on 30th September. However, accretion to capital funds other than to share capital, such as half-yearly profit etc., will not be eligible for reckoning the exposure ceiling. Banks should also ensure that they do not take exposures in excess of ceiling prescribed in anticipation of infusion of capital on a future date. 2.2.1 Capital Funds The "Capital Funds" for the purpose of exposure norm would comprise both Tier I and Tier II Capital as defined in our Master Circular on Capital Adequacy. 2.2.2 The Exposure shall include both credit exposure (Loans and Advances) and investment exposure (non-SLR) as indicated below : 2.2.2.1 Credit Exposure (i) Credit exposure shall include -
(ii) Credit exposure shall not include loans and advances granted against the security of bank's own term deposits (iii) The sanctioned limit or outstanding whichever is higher shall be reckoned for arriving at credit exposure limit. Further, in case of fully drawn term loans, where there is no scope of re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding for arriving at credit exposure limit. (iv) In respect of non-funded credit limit, 100 % of such limit or outstanding, whichever is higher, need be taken into account for the purpose. (v) Consortium / Multiple Banking / Syndication The level of individual bank's share shall be governed by single borrower / group exposure. Investment Exposure (Non SLR) 2.2.2.2 Banks are allowed to invest in 'A' or equivalent and higher rated Commercial Papers (CPs), debentures, and bonds that are redeemable in nature. Investments in perpetual debt instruments are, however, not permitted. Banks are also allowed to invest in Units of Debt Mutual Funds and Money Market Mutual Funds. a) Investments in non-SLR securities should be limited to 10% of a bank's total deposits as on March 31 of the previous year. b) Investments in unlisted securities should not exceed 10% of the total non-SLR investments at any time. Where banks have already exceeded the said limit, no incremental investment in such securities will be permitted. Investment in Non-SLR debt securities (both primary and secondary market) by UCBs where the security is proposed to be listed in the Exchange(s) may be considered as investment in listed security at the time of making investment. However, if such security is not listed within the period specified, the same will be reckoned for the 10% limit specified for unlisted Non-SLR securities. In case such investments included under unlisted Non-SLR securities lead to breach of 10% limit, UCB would not be allowed to make fresh investments in Non-SLR securities till its investment in unlisted securities is brought within the limit of 10%. c) All investments as above will be subject to the prescribed prudential individual / group exposure limits. d) All fresh investments under Non-SLR category should be classified under Held for Trading (HFT) / Available for Sale (AFS) categories only and marked to market. However, investment by UCBs in the long term bonds issued by companies engaged in executing infrastructure projects and having a minimum residual maturity of seven years may be classified under HTM category. Group 2.2.3 The decision in regard to definition of a group is left to the perception of the banks, which are generally aware of the basic constitution of their clientele. The group to which a particular borrowing unit belongs may, therefore, be decided by the banks on the basis of relevant information available with them, the guiding principle in this regard being commonality of management and effective control. 2.2.4 The different firms with one or more common partners engaged in the same line of business, viz. manufacturing, processing, trading activity, etc. shall be deemed to be connected group and units coming under common ownership shall be deemed to be a single party. 2.2.5 Unsecured advances shall include clean overdrafts, loans against personal security, clean bills or Multani hundies purchased or discounted, cheques purchased and drawals allowed against cheques sent for collection but shall exclude : i) advances backed by guarantee of the central or state governments, public sector financial institutions, banks and Deposit Insurance & Credit Guarantee Corporation; ii) advances against supply bills drawn on the central or state governments or state owned undertakings which are accompanied by duly authorised inspection notes or receipted challans; iii) advances against trust receipts; iv) advances against inland D/A bills drawn under letters of credit; v) advances against inland D/A bills (even where such bills are not drawn under letters of credit) having a usance of not exceeding 90 days; vi) advances granted to salaried employees against personal security, provided that the Co-operative Societies Act of the State concerned contains an obligatory provision for deduction of periodical loan instalments by the employer out of the employee's salary / wages to meet the bank's claims and provided further that the bank has taken advantages of this provision in respect of each of such advances; vii) advances against supply bills drawn on private parties of repute and receipted challans of public limited companies and concerns of repute and not outstanding for more than 90 days; viii) advances against book debts which are not outstanding for more than 90 days; ix) cheques issued by governments, public corporation and local self governing institutions; x) advances in the form of packing credit for exports; xi) demand drafts purchased; xii) the secured portion of a partly secured advances, and xiii) advances against legal assignment of contract moneys due, or to become due. Note : All bills of exchange not accompanied by the official receipts of the Indian Railways or Indian Airlines Corporation or Road and Water Transport Operators, as approved by the Board of Directors of the primary co-operative bank, shall be deemed to be clean bills. 2.2.6 Concerns in which a director of a primary co-operative bank or his relative is interested shall mean - i) proprietary concerns / partnership firms (including Hindu Undivided Family concerns and association of persons) in which a director of the bank or his relative is interested as proprietor / partner / co-parcener; ii) private / public limited companies, where a director of the bank is a guarantor for repayment of loans and advances granted to the company. 2.2.7 The 'relative' of a director of the bank shall mean any relative of a director of the bank as indicated hereunder : A person shall be, deemed to be relative of another, if and only if, : (a) they are members of a Hindu Undivided Family; or
2.2.8 The words 'any other financial accommodation' shall include funded and non-funded credit limits and under-writings and similar commitments, as under : (i) The funded limits shall include loans and advances by way of bills 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. (ii) The non-funded limits shall include letters of credit, guarantees and under-writings and similar commitments. Real Estate Sector Exposure Limit 2.3 Primary (urban) co-operative banks are advised to frame, with the approval of their Board of Directors, comprehensive prudential norms relating to the ceiling on the total amount of real estate loans, keeping in view the Reserve Bank guidelines to ensure that bank credit is used for construction activity and not for activity connected with speculation in real estate subject to the following : 2.3.1 The exposure of UCBs to housing, real estate and commercial real estate loans would, with effect from November 15, 2010, be limited to 10 per cent of their total assets, instead of 15 per cent of deposits. UCBs having unsecured loans and advances in excess of 10 per cent of its total assets may initiate steps to align their exposure to the revised limits within a period of six months from November 15, 2010. 2.3.2 The above ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per cent of total assets for the purpose of grant of housing loans to individuals for purchase or construction of dwelling units costing up to Rs.10 lakh (changed to housing loan upto Rs.15 lakh in terms of circular UBD.BPD.(PCB).Cir.No.47/13.05.000/2010-11 dated May 11, 2011). 2.3.3 The total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding financial year. For reckoning total assets, losses, intangible assets, contra items like bills receivables etc. would be excluded. 2.3.4 Working capital loans given by UCBs against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments is exempted from the prescribed limit. 2.3.5 UCBs were earlier permitted to exceed the limit prescribed for grant of housing, real estate, commercial real estate loans to the extent of funds obtained from higher financing agencies and refinance from National Housing Bank. The said permission stands withdrawn from May 11, 2011 in terms of circular UBD.BPD.(PCB).Cir.No.47/13.05.000/2010-11 dated May 11, 2011. Prudential Inter-bank (Gross) Exposure Limit 2.4.1 The total amount of deposits placed by an UCB with other banks (inter-bank) for all purposes including call money / notice money, and deposits, if any, placed for availing clearing facility, CSGL facility, currency chest facility, remittance facility and non-fund based facilities like Bank Guarantee (BG), Letter of Credit (LC), etc shall not exceed 20% of its total deposit liabilities as on March 31 of the previous year. The balances held in deposit accounts with commercial banks and in permitted scheduled UCBs and investments in Certificate of Deposits issued by commercial banks, being inter bank exposures, will be included in this 20% limit. Prudential Inter-bank Counter Party Limit 2.4.2 Within the prudential inter-bank (gross) exposure limit, deposits with any single bank should not exceed 5% of the depositing bank's total deposit liabilities as on March 31 of the previous year. Exemptions from the prudential limit The balances maintained by UCBs with the Central Cooperative Bank of the district concerned or with the State Cooperative Bank of the State concerned under the provisions of Section 24 of the Banking Regulation Act, 1949 (AACS) are also exempted from the prudential limit on inter-bank exposure limits [Paragraph 2.4.1 and 2.4.2]. 2.4.3 Deposits placed by non-scheduled PCBs with scheduled PCBs 2.4.3.1 Non-scheduled PCBs are permitted to place deposits with strong scheduled PCBs complying with the following norms : 3. Ceiling on Unsecured Advances (with Surety & without Surety)
(b) UCBs may grant unsecured advances without surety within the under noted limits only in respect of purchase / discount / withdrawal against third party cheques for a temporary period of 30 days in emergent cases :
3.1.1 The limits on unsecured advances (with or without surety) have been revised, with effect from November 15, 2010. The revised limits are as under: Limits for Individual Borrower and Group Borrower
3.2 Aggregate Ceiling on Unsecured Advance The total unsecured loans and advances (with surety or without surety or for cheque purchase) granted by a UCB to its members should not exceed 10 per cent of its total assets as per the audited balance-sheet as on 31 March of the preceding financial year, with effect from November 15, 2010, instead of 15% of its Demand and Time Liabilities (DTL). The total assets should be reckoned net of losses, intangible assets and contra items like bills receivables etc. No bank shall finance a borrower, who is already enjoying credit facilities with another bank, without obtaining a 'NOC' from such financing bank and where the aggregate of the credit facilities enjoyed by the borrower exceeds the ceiling stipulated in the directive for a single party, the prior approval of Reserve bank shall be obtained. 3.2.1 In view of the fact that salary earner banks grant advances to salaried employees of a particular institution / group of institutions to which their membership is restricted and deductions are made from the salaries through their employers, the salary earner banks may allow such advances in excess of the limits prescribed above subject to the following conditions : (i) The Co-operative Societies Act of the State concerned contains an obligatory provision for deduction of periodical loan instalments by the employer out of employee's salaries / wages to meet bank's claims. (ii) The bank has taken advantage of this provision in respect of each of such advance. (iii) A general limit for such advances is fixed by the bank in terms of certain multiples of the pay packet taking into account the monthly income of the employees. 3.2.2 The advances granted by primary (urban) co-operative banks, other than salary earners societies, to all salaried borrowers wherein repayment is sought to be ensured through deduction from borrower's salaries as per the provisions of the State Co-operative Societies Act, should be reckoned as secured only for the purpose of computation of total unsecured advances to the members as a whole. While granting advances to the individual salaried borrowers, the banks should ensure that these advances do not exceed the maximum limit on unsecured advances as indicated in paragraph 3.1 (a). 4.1 Advances against Bank's Own Shares In terms of Section 20(1)(a) of the Banking Regulation Act 1949 (As applicable to co-operative societies), a primary (urban) co-operative bank cannot grant loans and advances on the security of its own shares. 4.2 Restrictions on Power to Remit Debts 4.2.1 Section 20-A(1) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) stipulates that a primary (urban) co-operative bank shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by -
4.2.2 In terms of Section 20-A(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. 5. Regulatory Restrictions
5.1.3 Banks are required to submit information pertaining to loans and advances granted to their directors and relatives for each quarter end (i.e. 31 March, 30 June, 30 September and 31 December) in the proforma given in Annex 1, to the concerned Regional Office of this Department within fifteen days from the close of the respective quarter.
Advances against Fixed Deposit Receipts (FDRs) Issued by Other Banks
5.5.2 Loans against the primary / collateral security of shares / debentures should be limited to Rs.5 lakh if the security is in physical form and upto Rs.10 lakh if the security is in demat form. 5.5.6 It is essential that before accepting shares as security, banks should put in place appropriate risk management systems. All the approved loan proposals should be placed before the Audit Committee of the Bank at least once in two months. The Management and Audit Committee should ensure that all loans against shares are made only to those individuals who are not in any way connected with any stock broking entity. Details of the loan sanctioned should be reported to the Board in its subsequent meeting. Bank Finance against Preference Shares and Long Term (Subordinated) Deposits 5.6 Primary (urban) Cooperative Banks should not invest in Perpetual Non cumulative Preference Shares (Tier I), other Preference shares (Tier II) such as Perpetual Cumulative Preference Shares, Redeemable Non Cumulative Preference Shares, Redeemable Cumulative Preference Shares and also in Long Term (Subordinated) Deposits (Tier II) issued by other banks; nor should they grant advances against the security of the above instruments issued by them or other banks. 5.7 Bank Finance to Non-Banking Financial Companies (NBFCs) 5.7.1 Admission of NBFCs as Members (i) For availing loans or advances from a primary (urban) co-operative bank, its membership is a must. However, primary (urban) co-operative banks are normally not expected to enrol non-banking financial institutions (like investment and financial companies as well as other persons engaged in the business competing with or conflicting with the business of the bank) as their members since it would be in contravention of the state co-operative societies act concerned and will also not be in conformity with the provision of model by-law No. 9. Therefore, banks should not finance NBFCs, other than those engaged in hire- purchase / leasing. (ii) Similarly, admission of non-banking financial companies which are not engaged exclusively in leasing / hire purchase business as members may be contrary to the provisions contained in the state co-operative societies act concerned and model by-law No. 9. It will, therefore, be necessary for the primary (urban) co-operative banks to obtain prior approval of the Registrar of Co-operative Societies concerned before admitting such leasing / hire purchase companies as members. Activities Eligible for Finance to NBFCs engaged in Hire Purchase / Leasing Activities 5.7.2 Within the prescribed credit exposure norms and above stated restrictions, primary (urban) co-operative banks, with working capital funds aggregating to Rs.25 crores and above, may finance the equipment leasing / hire purchase companies, subject to the following limits:
Note
(ii) In respect of items indicated at (a) and (b) above, banks should not make any adjustment in the projected net working capital (NWC). It may be added that the projected NWC represents long-term surplus available to support current operations and, therefore, does not need to be adjusted as a result of changing / pruning the level of current assets while reducing the level of maximum permissible bank finance.
(ii) The Scheduled primary (urban) co-operative banks may provide finance to NBFCs eligible for bank finance for the purpose of on-lending to Small Road and Water Transport Operators (SRWTOs) for purchase of trucks and classify such advances under priority sector, provided the ultimate borrowers (SRWTOs) satisfy the eligibility requirements for being classified under the priority sector. 5.8 Financing Equipment Leasing and Hire Purchase Financing 5.8.1 Consequent to the Government of India notification dated 12 December 1995 specifying 'Hire Purchase' and 'Equipment Leasing' as forms of business in which it is lawful for a primary cooperative bank to engage, Scheduled urban cooperative banks are allowed to undertake these activities. Scheduled urban cooperative banks are advised to ensure that:
5.9 Financing for Agricultural Activities 5.9.1 The primary (urban) co-operative banks are permitted to finance agricultural activities under priority sector subject to the following conditions :
5.10 Loans to Self Help Groups (SHGs) / Joint Liability Groups (JLGs) 5.10.1 In terms of circular UBD.BPD.(PCB)CIR.No.50/13.05.000(B)/2010-11 dated June 2, 2011 UCBs may lend to SHGs and JLGs as per their Board approved policy framed in this regard, according to the guidelines prescribed in the above circular. 5.10.2 UCBs may follow the method of lending directly to SHGs / JLGs. Lending through intermediaries will not be permitted. 5.10.3 The extant limits (individual and total) on grant of unsecured loans and advances will not apply to loans granted to SHGs. However, loans granted by UCBs to JLGs, to the extent not backed by tangible security, will be treated as unsecured and will be subject to the extant limits on unsecured loans and advances. 5.10.4 Loans granted to SHGs / JLGs would be governed by the extant guidelines on individual exposure limits. 5.10.5 The maximum amount of loan to SHGs should not exceed four times of the savings of the group. The limit may be exceeded in case of well managed SHGs subject to a ceiling of ten times of savings of the group. The groups may be rated on the basis of certain objective parameters such as proven track record, savings pattern, recovery rate, housekeeping etc. JLGs are not obliged to keep deposits with the bank and hence the amount of loan granted to JLGs would be based on the credit needs of the JLG and the bank's assessment of the credit requirement. 5.11 Restriction on Advances to Defaulters of Statutory Dues 5.11.1 Under the law, employees' contributions to provident fund deducted from wages of the employees / members, for a period of more than six months and not paid to the Commissioner are a first charge on the assets of the borrowers, in the case of the insolvency / winding up of the borrowing employer. In the circumstances, primary (urban) co-operative banks should safeguard their interest vis-à-vis such statutory dues. 5.11.2 Therefore, banks should 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 sick units where there are arrears for reasons beyond the control of the borrowers, banks may continue to consider such cases on merits.
Appendix
List of Other Circulars from which Instructions relating to Credit
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