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Reserve Bank releases draft circular on loan exposure limits & PSL threshold for UCBs

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On December 30, 2019, In an effort to avoid frauds, India’s central bank, the Reserve Bank of India (RBI) has released draft circular on limits on exposure to single and group borrowers/parties, large exposures and revision in priority sector lending (PSL) targets for primary (urban) co-operative banks (UCBs).This move comes after depositors lost large sums of money following the crisis at Punjab and Maharashtra Cooperative (PMC) Bank.RBI extends liquidity sops for banks to March 31Revised exposure limits:
RBI has decided to restrict Primary (urban) cooperative banks (UCBs) exposure to a single borrower & a group of connected borrowers at 10% and 25%, respectively, of their tier-I capital, which comprises shareholders’ equity and retained earnings.  Still now, the limits are 15% and 40%, respectively.
i.In addition, UCBs are mandated to bring down their excess current exposures to the above said stipulated scale by March 31, 2023.
ii.Credit exposures of many UCBs, especially scheduled UCBs, comprise large volume of loans.

Broadening borrower base of UCBs
UCBs also required to have at least 50% of their portfolio should comprise advances (including all fund-based and non-fund-based exposure on the borrower) of not more than ₹25 lakh per borrower.

RBI increases PSL target for UCBs from 40% to 75%
The reserve bank has also hiked the priority sector lending (PSL) target for UCBs to 75% of adjusted net bank credit (ANBC) /credit-equivalent amount of off-balance sheet exposure from 40%. The norms will be applicable from 31 March 2023.

ANBC: It includes the total credit forwarded by the banks together with other investments made by it which are not its obligation.

Background:
RBI has been extremely cautious on the front of cooperative banks after it has prohibited Punjab and Maharashtra Co-operative Bank Limited (PMC) operations & also appointed Jai Bhagwan Bhoria as an administrator to find out the alleged financial irregularities.
About 73 % of its assets at Rs 6,500 crore of Rs 11,800 crore that was given to the HDIL (Housing Development and Infrastructure Ltd ) group that in turn resulted into NPA (a loan or advance for which the principal or interest payment remained overdue for a period of 90 days).

About RBI:
Headquarters– Maharashtra
Established– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, and Mahesh Kumar Jain, 1 is yet to be appointed)