The Reserve Bank of India (RBI) on Monday released a draft circular on limits on exposure to single and group borrowers and revision in priority sector lending targets for urban cooperative banks (UCBs).
The move comes after the recent Punjab and Maharashtra Cooperative (PMC) Bank debacle 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.
The RBI circular stipulates that prudential exposure limits for UCBs for a single borrower and a group of connected borrowers will be 10 per cent and 25 per cent respectively of their tier-one capital. Besides, at least 50 per cent of their loan portfolio will comprise loans not more than Rs 25 lakh per borrower.
The target for loans and advances to the priority sector for UCBs will be 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.
“An appropriate glide path is proposed to be provided to UCBs for compliance with these norms and limits,” said the central bank in a statement.
“These measures are expected to reduce credit concentration risk of UCBs and promote financial inclusion,” it said calling for comments on the draft circular by January 20, 2020.
Source: NDTV Profit