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
Previous ArticleECB Publishes Release 5.0 of BIRD Database
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.