The Hindu Business Line : RBI bars urban co-ops from unrated securities

THE Reserve Bank of India has told urban co-operative banks that they must not invest in unrated debt securities, unlisted securities and unlisted shares of financial institutions.

In its draft guidelines for UCBs, aimed at containing the risks arising out of their non-SLR investment portfolios, the apex bank has said the debt securities should carry a credit rating of not less than investment grade from a credit rating agency registered with the Securities and Exchange Board of India (SEBI).

UCBs should ensure that they make all fresh non-SLR debt investments only in listed debt securities of public sector undertakings, which comply with the requirements of the SEBI circular, dated September 30, 2003, the RBI has said.

The total investment in such securities should not exceed 10 per cent of the banks' total deposits as on March 31 of the previous year, with a sub-ceiling of 5 per cent of incremental deposits of the previous year for investments.

The board of directors of the banks should fix a prudential limit for their total investment in non-SLR securities and sub-limits for debt securities, bonds of public sector undertakings, bonds or equity of financial institutions, infrastructure bonds floated by financial institution, unsecured redeemable bonds floated by nationalised banks, units of UTI, certificate of deposits issued by scheduled commercial banks and other financial institutions approved by RBI.

Banks which have exposure to investments in non-SLR securities in excess of the prudential limit prescribed above as on March 31, 2003 should not make any fresh investment in such securities till they ensure compliance with the above prudential limit.

Banks should undertake usual due diligence in respect of investments in non-SLR securities. The current RBI regulations preclude banks from extending credit facilities for certain purposes. Banks should ensure that such activities are not financed by way of funds raised through the non-SLR securities, according to the RBI.

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