RBI sets UCBs' lending limit at 10% for single party, 25% for groups
31 December 2019
The Reserve Bank of India (RBI) has released draft circular on exposure limits to single and group borrowers/parties, large exposures and revision in priority sector lending targets for primary (urban) co-operative banks (UCBs).
The 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 Rs25 lakh per borrower/party.
It further stipulates that 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 31 March 2023.
RBI said it intends to provide an appropriate glide path to UCBs for compliance with the aforesaid norms/limits/targets.
These measures are expected to reduce credit concentration risk of the UCBs and promote financial inclusion, it added.
RBI has sought comments on the draft circular by 20 January 2020.
In a circular dated 1 April 2000, RBI had indicated that the prudential exposure ceiling should not exceed 20 per cent and 50 per cent of the capital funds of the bank in case of individual borrower and group of borrowers respectively. The capital funds comprise of paid up capital and free reserves. Exposure includes both funded and non-funded credit limits and underwriting and similar commitments. The sanctioned limits or outstanding whichever is higher is reckoned for arriving at exposure limit. However, in respect of non-funded credit limits, only 50 per cent of such limits or outstanding, whichever is higher is taken for arriving at the exposure ceiling.
The matter has since been reviewed and it has been decided to fix the prudential exposure limits at 15 per cent and 40 per cent of the 'Capital Funds' in case of single borrower and group of borrowers respectively.
RBI also asked primary urban cooperative banks (UCBs) having total assets of Rs500 crore and above as on 31 March of the previous financial year to report credit information, including classification of an account as Special Mention Account (SMA), on all borrowers having aggregate exposures of Rs5 crore and above with them to the Central Repository of Information on Large Credits (CRILC) maintained by RBI.
Aggregate exposure shall include all fund-based and non-fund based exposure, including investment exposure on the borrower, RBI said.
Special Mention Account (SMA) is an account which is exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of her debt obligations, though the account has not yet been classified as NPA as per the extant RBI guidelines.
“As early recognition of such accounts will enable banks to initiate timely remedial actions to prevent their potential slippages into NPAs, it is advised that UCBs having total assets of Rs500 crore and above as on 31 March of the previous financial year shall take necessary steps to classify loans/advances accounts as SMA,” RBI stated.
Accordingly, RBI said, loans where the principal or interest payment or any other amount is wholly or partially overdue for up to 30 days may be classified as SMA-0; those overdue between 31 and 60 days as SMA-1 and those loans that are overdue for over 61 days and up to 90 days as SMA-2.
In case of revolving credit facilities like cash credit, if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of31 to 60 days may be classified as SMA-1 and those that are overdue between 61 and 90 days may be categorised as SMA-2.
To start with, UCBs will be required to submit CRILC report on quarterly basis with effect from 31 December 2019.
RBI said it the Department of Supervision will issue detailed operating instructions shortly.