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    RBI Consults on Large Exposure Limits for Co-operative Banks

    December 30, 2019

    RBI released draft circular on the limits on exposure to single and group borrowers/parties and large exposures and on the revisions to priority sector lending targets for primary (urban) co-operative banks (UCBs). RBI has reviewed the single or group exposure limits of UCBs and has decided to rationalize the single or group exposure limits for UCBs, in an effort to contain the concentration risk. Comments on the draft circular were requested by January 20, 2020.

    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% and 25%, respectively, of their Tier I capital. The revised exposure limits shall apply to all types of fresh exposures taken by UCBs. The UCBs shall bring down their existing exposures that are in excess of the revised limits to within the aforesaid revised limits by March 31, 2023. However, where the existing exposure comprises only term loans and non-fund-based facilities, while no further exposure shall be taken on such borrowers, these facilities may be allowed to continue as per their respective repayment schedule or till maturity.

    The circular also states that UCBs shall have at least 50% of their loan portfolio comprising loans of not more than INR 25 lakh per borrower/party. The circular further stipulates that the target for loans and advances to priority sector for UCBs shall stand increased to 75% 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 the aforesaid norms/limits/targets. UCBs shall prepare, with the approval of their Board, an action plan for compliance with the revised exposure norms/limits and priority sector lending targets. 

     

    Comment Due Date: January 20, 2020

    Keywords: Asia Pacific, India, Banking, Concentration Risk, Large Exposures, Exposure Limits, Cooperative Banks, Credit Risk, RBI

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