The Hindu Business Line : Credit exposure limit for urban co-ops tightened

The single borrower limit for UCBs has been reduced to 15 per cent from 20 per cent and group borrower limit to 40 per cent from 50 per cent of the banks' capital fund.

In a circular issued to the chiefs of all primary UCBs, the central bank said, exposures shall include funded and non-funded credit limits as also underwriting and similar commitments.

The sanctioned limit or outstanding whichever is higher shall be considered for arriving at exposure limit. However, in respect of non-funded credit limits, 100 per cent of such limits or outstanding, whichever is higher, shall be taken into account for this purpose.

Exposure to individual group of borrowers shall also include investments made by the primary (urban) co-operative banks in non-SLR securities prescribed by the RBI.

At present, non-SLR securities comprise bonds of public sector undertakings, infrastructure bonds floated by financial institutions, unsecured redeemable bonds floated by the nationalised banks, equity and bonds of FIs and units of UTI.

The central bank has also defined what constitutes Tier-I and Tier-II capital of UCBs.

Tier I Capital would include, paid-up share capital collected from regular members of a bank having voting powers and free reserves as per the audited accounts. Reserves, if any, created out of revaluation of fixed assets or those created to meet outside liabilities should not be included in the Tier I Capital, the central bank has said.

Free reserves shall exclude all reserves provisions, which are created to meet anticipated loan losses, losses on account of fraud etc, depreciation in investments and other assets and other outside liabilities. While the amounts held under the head `Building Fund' will be eligible to be treated as part of free reserves, `Bad and Doubtful Reserves' shall be excluded.

Capital reserves representing surplus arising out of sale proceeds of assets, would also constitute Tier-I capital as would any surplus (net) in profit and loss account i.e. balance after appropriation towards dividend payable, education fund, other funds whose utilisation is defined, asset loss, if any, etc.

Tier II Capital would constitute undisclosed reserves. These often have characteristics similar to equity and disclosed reserves. They have the capacity to absorb unexpected losses and can be included in capital, if they represent accumulation of profits and not encumbered by any known liability and should not be routinely used for absorbing normal loss or operating losses, the RBI has said.

To be eligible for inclusion in Tier II capital, the instrument should be fully paid-up, unsecured, subordinated to the claims of other creditors, free of restrictive clauses and should not be redeemable at the initiative of the holder or without the consent of the bank's supervisory authorities.

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