Urban Cooperative Banks (UCB) Current Affairs - 2020

Exposure Limits for Urban Cooperative Banks revised by RBI

On March 13, 2020, the Reserve Bank of India revised exposure limits of Urban Cooperative Banks. Earlier the RBI permitted 15% of its capital funds to single borrowers and 40% of its funds to group of borrowers. It has now revised the group of borrower fund limit to 25% of its funds.

Highlights

Apart from Exposure limit, the central bank also increased the Priority Sector lending to 75%. These changes were introduced by the Reserve Bank of India through a notification.

Exposure Limit

The Exposure Limit is the maximum credit a bank avails to its borrower. In simple terms, higher the exposure limit, higher are the loans available to its customers.

Priority Sector Lending

It is an important role provided by the RBI to banks. The priority sectors include agriculture, micro and small enterprises, low income groups, poor people for housing, education loans, loans for weaker sections.

  • Agriculture and allied activities include farmers and self-help groups
  • The loan to small scale industries are also Priority Sector Lending. Direct Finances under this category include processing, preservation of goods, manufacturing. Indirect Finances in the category include cottage industries, artisans, cooperatives of producers and artisans.

RBI constitutes high level panel on urban cooperative banks (UCB)

The Reserve Bank of India (RBI) has constituted a high-powered panel on urban cooperative banks (UCB).

It will be headed by RBI Deputy Governor R Gandhi and comprise of eight member who will be experienced bankers. They will submit its report within three months from the date of its first meeting.

This high-powered panel will re-examine and recommend appropriate set of businesses, size, conversion and licensing terms for the UCB sector.

The Terms of Reference of the high level panel are:

  • Businesses: Examine the line of businesses that UCBs may be permitted to undertake and their benchmark in terms of size of business, capital requirement, regulatory regime etc.
  • Size of UCB: Suggest the appropriate size up to which a UCB may be able to grow without undue risk to the system.
  • Conversion Criteria & licensing terms : Suggest the criteria for allowing voluntary conversion by a UCB and examine whether the time is opportune to give license to new UCBs.
  • Determine the modalities of implementing the suggestion of the Malegam Committee. Especially, whether the 50 per cent in value of deposits should be held by voting members. Thus, propose a feasible structure that puts majority voting in the hands of contributors of funds in UCB.