The Reserve Bank of India (RBI) has cut the prudential exposure limits for urban co-operative banks (UCBs) to a group of connected borrowers. It also gave these banks one more year to meet the enhanced priority sector lending (PSL) norms.

The RBI said henceforth, the prudential exposure limits for UCBs to a group of connected borrowers/parties will be 25 per cent (40 per cent), respectively, of their tier-I capital.

The prudential exposure limits for single borrower/party have been retained at 15 per cent of UCBs tier-I capital. The December 2019 draft circular on “ Limits on Exposure to Single and Group Borrowers/Parties and Large Exposures and Revision in Priority Sector Lending Targets for UCBs” had proposed this exposure limit at 10 per cent.

The revised exposure limits will apply to all types of fresh exposures taken by UCBs. The RBI said UCBs have to bring down their existing exposures which are more than 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 / till maturity.

UCBs shall have at least 50 per cent of their aggregate loans and advances comprising loans of not more than ₹25 lakh or 0.2 per cent of their Tier I capital, whichever is higher, subject to a maximum of Rs.1 crore, per borrower/party.

Revised PSL Target

UCBs have been given time up to March 31, 2024 to reach the PSL target of 75 per cent of loans against March 31, 2023 proposed in the draft circular.

They are required to reach this PSL target in four phases -- 45 per cent of loans by March-end 2021; 50 per cent of loans by March-end 2022; 60 per cent of loans by March-end 2023; and 75 per cent of loans by March-end 2024. Currently, the overall PSL target for UCBs is at 40 per cent of loans.

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