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Bank Finance against Shares and Debentures and Small Value Loans by UCBs

Reserve Bank of India (RBI) has revised the guidelines on bank finance against shares and debentures and small value loans by Primary (Urban) Co-operative Banks (UCBs).

What are the guidelines on bank finance to stock brokers?

  • Primary (Urban) Co-operative Banks (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.

What are the guidelines on bank finance to individuals against shares and debentures?

  • Advances against units of mutual funds can be extended only to individuals.
  • Loans against the primary / collateral security of shares / debentures can be extended only to individuals and 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.

What is the limit for bank finance against shares and debentures?

Extant guidelines Revised guidelines
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. Aggregate of all loans against the security of shares and debentures should be within the overall ceiling of 20% of Tier I capital of the bank as on 31st March of the previous financial year (revised limit effective from January 01, 2025).

What are the guidelines on small value loans?

UCBs shall have at least 50% of their aggregate loans and advances comprising small value loans i.e., 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. 

The target date for complying with the requirement was March 31, 2024 which has now been extended as below –

Target Date March 31, 2025 March 31, 2026
Minimum percentage of Small Value Loans in aggregate loans and advances 40% 50%

‘Loans’ for the purpose shall include all types of funded and non-funded exposures in the nature of credit.


References

Reserve Bank of India. (2001, October 22). 'Bank finance against shares and debentures'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7065&Mode=0

Reserve Bank of India. (2020, March 13). 'Limits on exposure to single and group borrowers/parties and large exposures and Revision in the target for priority sector lending – UCBs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11819&Mode=0

Reserve Bank of India. (2024, July 25). 'Bank Finance against Shares and Debentures'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12708&Mode=0

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

Reserve Bank of India. (2024, July 25). 'Small Value Loans – Primary (Urban) Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12709&Mode=0


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