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Exposure Norms for UCBs

Reserve Bank of India (RBI) has issued guidelines on exposure norms and statutory / other restrictions for primary (urban) co-operative banks (UCBs).

What is exposure?

Exposure shall include both credit exposure (Loans and Advances) and investment exposure (Non- SLR securities).

What are the exposure ceiling for individual / group borrowers?

Primary (urban) co-operative banks (UCBs) shall fix exposure ceiling in relation to their Tier-I capital.

Borrower Exposure ceiling
Individual borrower 15% of Tier-I capital
Group of connected borrowers / parties 25% of Tier-I capital

What is the thresholds for value of loans?

  • UCBs shall have at least 50% of their aggregate loans and advances comprising loans of not more than ₹25 lakh or 0.2% of their Tier-I capital, whichever is higher, subject to a maximum of ₹1 crore, per borrower / party. 
  • UCBs which do not, at present, comply with the prescribed threshold shall be in conformity with the requirements by March 31, 2024. 

What are the limits for exposure to real estates?

  • The exposure of UCBs to housing (including individual loans for house repairs, additions and alteration), real estate and commercial real estate loans (including Commercial Real Estate –Residential Housing) should be limited to 10% of their total assets. 
  • The above ceiling can be exceeded by an additional limit of 5% of total assets for the purpose of grant of housing loans to individuals as per the eligibility limits for priority sector classification.
  • The limits for individual housing loans are –

UCBs Limit per individual borrower
Tier-1 UCBs Up to ₹60 lakh
Tier-2 to 4 UCBs Up to ₹140 lakh

What are the limits on unsecured advances to individual / group borrower?

The limits on unsecured advances (with or without surety) to individual / group borrower are as under –

Criteria UCBs with DTL up to ₹10 Crore UCBs with DTL above ₹10 crore & up to ₹50 Crore UCBs with DTL above ₹50 Crore & up to ₹100 Crore UCBs with DTL above ₹100 Crore
UCBs having CRAR equal to or more than 9% ₹1 lakh ₹2 lakh ₹3 lakh ₹5 lakh
UCBs having CRAR less than 9% ₹0.25 lakh ₹0.50 lakh ₹1 lakh ₹2 lakh

What are aggregate ceiling on unsecured advances?

  • 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% of its total assets as per the audited balance-sheet as on 31 March of the preceding financial year.
  • 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 for a single party, the prior approval of RBI shall be obtained.
  • For UCBs whose priority sector loan portfolio is more than 90% of the gross loans may, with the prior approval of RBI, grant unsecured advances to the extent of 35% of their total assets as per the audited balance sheet at the end of the preceding financial year, subject to the following conditions –
    • The entire unsecured loan portfolio in excess of the normally permitted 10%, shall comprise of priority sector loans and the exposure to any individual borrower shall not exceed ₹40,000/-
    • CRAR of not less than 9% as per the latest Inspection Report and audited financial statements.
    • Gross NPAs of not more than 7% as per the latest Inspection Report and audited financial statements.
  • With effect from October 10, 2013, unsecured loans up to Rs 10,000/- sanctioned by UCBs are exempted from the aggregate ceiling on unsecured exposure of 10% of total assets as per audited balance sheet as on March 31 of the previous financial year and UCBs may extend unsecured loans up to 15% of its total assets, subject to the following conditions (financial parameters as on March 31 of the previous year, as assessed by RBI) –
    • The individual amount sanctioned should not exceed ₹10,000/-.
    • The loan should be for productive purpose and banks should ensure end use of funds lent.
    • The bank should have CRAR of at least 9%.
    • The Gross NPAs of the bank should be less than 10% of gross advances.

What are statutory restrictions?

  • UCB cannot grant loans and advances on the security of its own shares.
  • UCB shall not, except with the prior approval of RBI, remit in whole or in part any debt due to it by -
    • Any of its past or present directors, or
    • Any firm or company in which any of its directors is interested as director, partner, managing agent or guarantor, or
    • Any individual, if any of its directors is his partner or guarantor.

What are restrictions on director related loans?

  • UCBs shall not make / provide / 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’). 
  • 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. 
  • The following categories of Director related loans are exempted from the purview of the above instructions –
    • Regular employee-related loans to staff Directors, if any, on the Boards of UCBs.
    • Normal loans, as applicable to members, to the Directors on the Boards of Salary Earners' UCBs.
    • Normal employee-related loans to Managing Directors / Chief Executive Officers of UCBs.
    • Loans to Directors and their relatives against Government Securities, Fixed Deposits and Life Insurance policies standing in their own name.

What are the ceiling on advances to nominal members?

UCBs may sanction loans to nominal members for short / temporary period and for purchase of consumer durables, subject to the following ceiling –

UCBs Ceiling of Loan Amount
With deposits upto ₹50 crore ₹50,000/- per borrower
With deposits above ₹50 crore ₹1,00,000/- per borrower

What are the restrictions for advances against term deposits?

  • The banks should desist from sanctioning advances against Fixed Deposit Receipts (FDRs) / term deposits of other banks.
  • Salary Earners’ Primary (Urban) Co-operative Banks are permitted to grant advances against term deposits of non-members, subject to the prescribed conditions.

What are restrictions for loans against capital market securities?

  • UCBs are prohibited from extending any fund based or non fund based credit facilities, whether secured or unsecured, to stockbrokers against shares and debentures / bonds, or other securities, such as fixed deposits, LIC policies etc.
  • UCBs are not permitted to extend any facility to commodity brokers including issue of guarantees on their behalf.
  • Advances against units of mutual funds can be extended only to individuals as in the case of advances against the security of shares, debentures and bonds.
  • Loans against the primary / collateral security of shares / debentures should be limited to ₹5 lakh if the security is in physical form and up to ₹10 lakh if the security is in demat form.
  • A margin of 50% should be maintained on all such advances.
  • Aggregate of all loans against the security of shares and debentures should be within the overall ceiling of 20% of the owned funds of the bank.
  • UCBs shall not grant any loan or advance to any person for purchasing their own Perpetual Non Cumulative Preference Shares (PNCPS), Tier-II preference shares (such as Perpetual Cumulative Preference Shares, Redeemable Non Cumulative Preference Shares and Redeemable Cumulative Preference Shares), Perpetual Debt instruments (PDI) and Long Term Subordinated bonds (LTSB). 
  • UCBs shall not grant any loan or advance to any person for purchasing PNCPS, Tier-II preference shares, PDI and LTSB of other banks. 
  • UCBs should not invest in PNCPS (Tier-I), other Preference shares (Tier-II) and also in Long Term (Subordinated) Deposits (Tier-II), PDI, LTSB issued by other banks; nor should they grant advances against the security of the above instruments issued by them or other banks.

What are restrictions for loans to NBFCs?

  • UCBs should not finance NBFCs, other than those engaged in hire-purchase / leasing.
  • UCBs, with working capital funds aggregating to ₹25 crores and above, may finance the NBFC - Investment and Credit Companies (NBFC-ICC), subject to the following limits –

Type of NBFC Maximum Limit on Bank Finance
NBFC-ICC having a least 75% of their assets in equipment leasing and hire purchase, and 75% of their gross income from these two types of activities as per the last audited balance sheet of the companies. 3 times of Net Owned Funds (NOF) of the NBFC
NBFC-ICC carrying out equipment leasing and hire purchase other than (i) above. 2 times of NOF of the NBFC
  • The maximum limit on bank finance should be within the overall ceiling of borrowing by NBFCs, up to 10 times of their NOF.
  • Bank finance to leasing concerns should be restricted only to ‘full payout’ leases i.e., those leases where the cost of the asset is fully recovered during the primary lease period itself.

What are the restrictions for financing of NBFCs by scheduled UCBs?

  • Scheduled UCBs may rediscount bills discounted by NBFCs arising from sale of commercial vehicles, including light commercial vehicles.
  • Scheduled UCBs 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.
  • UCBs may finance NBFCs for on-lending to individual farmers and for hire purchase schemes for distribution of agricultural machinery and implements.
  • Scheduled UCBs may extend finance to NBFCs or other financial intermediaries for on-lending to small and micro enterprises (manufacturing as well as service).

What are the restrictions for financing equipment leasing and hire purchase?

  • Scheduled UCBs are allowed to undertake equipment leasing and hire purchase financing.
  • Credit exposure to each of these activities should not exceed 5% of total advances.
  • Non Scheduled UCBs, which desire to undertake these activities should obtain RBI permission.

What are the other restrictions?

  • UCBs have been prohibited from entertaining any proposal for bridge loan / interim finance from all the categories of NBFCs i.e. equipment leasing, hire-purchase, loan, investment and also residuary non-banking companies.
  • The extant limits (individual and total) on grant of unsecured loans and advances will not apply to loans granted to SHGs. 
  • 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.
  • The maximum amount of loan to SHGs should not exceed 4 times of the savings of the group. The limit may be exceeded in case of well managed SHGs subject to a ceiling of 10 times of savings of the group. 


References

Reserve Bank of India. (2024, January 16). 'Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12600&Mode=0


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