RBI's draft norms on prudential exposure limits for cooperative banks issued

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Mumbai: The Reserve Bank of India (RBI) on Monday (December 30) released a draft circular on limits on exposure to single and group borrowers/parties, large exposures and revision in priority sector lending targets for primary (urban) co-operative banks (UCBs) for feedback and suggestions. 

The central bank's circular stipulates that the prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 10 per cent and 25 per cent, respectively, of their Tier I capital and that at least 50 per cent of their loan portfolio shall comprise loans not more than Rs 25 lakh per borrower/party. 

"The target for loans and advances to priority sector for UCBs shall stand increased to 75 per cent of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, by March 31, 2023," the circular said. 

An appropriate glide path is proposed to be provided to UCBs for compliance with the aforesaid norms/limits/targets. The above measures are expected to reduce the credit concentration risk of the UCBs and promote financial inclusion. 

Notably, the comments on the draft circular may be forwarded to the RBI by January 20, 2020 to:

The Chief General Manager
Department of Regulation
Reserve Bank of India
C-7, 1st & 2nd Floor
Bandra Kurla Complex, Bandra (E)
Mumbai – 400051

The comments can also be forwarded by email with the subject line “Limits on exposure to single and group borrowers/parties and large exposures and Revision in priority sector lending targets - UCBs”.

The RBI move comes after the recent Punjab and Maharashtra Cooperative (PMC) Bank fraud which left thousands of depositors clamouring for withdrawals amid reports of major financial irregularities, failure of internal control and systems of the bank, and wrong or under-reporting of its exposures under various off-site surveillance reports.