RBI monetary policy review: Client exposure norms for UCBs to be tightened

The RBI said it would amend the guidelines for UCBs to reduce concentration risk in exposures

The Reserve Bank of India (RBI) said on Thursday it would revise regulatory guidelines to make urban co-operative banks (UCBs) with assets of Rs 500 crore and above to report information on large credits. The move comes in the wake of an alleged fraud at Punjab and Maharashtra Co-operative (PMC) Bank involving a large real estate firm.

The RBI, in its developmental and regulatory policies, said it would amend the guidelines for UCBs to reduce concentration risk in exposures, priority sector lending and strengthen their role in promoting financial inclusion.

State Bank of India Chairman Rajnish Kumar said the regulatory steps for the primary (urban) co-operative banks would facilitate increased public confidence in these institutions.

These measures are expected to strengthen the resilience and sustainability of UCBs and protect the interest of depositors. It will give appropriate time frame to comply with the revised norms and will issue a draft circular proposing the above changes, the central bank said.

The RBI has created a central repository of information on large credits (CRILC) of scheduled commercial banks and financial institutions to strengthen offsite supervision and early recognition of financial distress. 

It will bring UCBs with assets of Rs 500 crore and above under the CRILC framework to build a similar database of large credits extended by UCBs. Detailed instructions in this regard will be issued by December 31.

Satish Marathe, director on RBI board and a cooperative bank expert, said UCBs did not have information about the exposure the commercial banks have to their client (big ticket borrower). The move to limit single and group exposure is apt, as exposures are more compared to their appetite, Marathe said. 

To fortify urban banks against cybersecurity risks, the RBI will prescribe a framework based on factors such as digital depth and interconnectedness with the payments systems and digital products offered. The framework will mandate implementation of progressively stronger security measures, strengthening the cybersecurity incident reporting mechanism and setting up of security operations centre.