UCBs asked to review deposit exposure with one another

The Reserve Bank of India (RBI) has asked non-scheduled banks to review their deposit exposure to other non-scheduled banks.

In a notification posted on its website on Monday, RBI observed that the smaller non-scheduled Urban Cooperative Banks (UCBs) were keeping current accounts or minimum required balance for clearing purpose with relatively larger non-scheduled bank for sub member clearing arrangements.

“It is possible that the financial position of the non-scheduled UCBs, with whom such deposits are kept, could take a hit due to unexpected downturn in its business and which could have an effect on the financial position of the depositing bank and its business.”

Consequently, non-scheduled UCBs, which have exposures to other non-scheduled UCBs on account of clearing arrangements, have been advised to review their exposures to such banks periodically based on their published balance sheet and Profit and Loss account statements.

In January 2009, BRI had prescribed prudential interbank gross exposure limits and inter-bank counter party limits for placing deposits with other banks by UCBs.

Further, in July, 2009 UCBs were advised to formulate a policy taking into account their funds position, liquidity and other needs for placement of deposits with other banks, the cost of funds, expected rate of return and interest margin on such deposits and the counter party risk and place it before their Board of directors. It was further advised that the Board should review the position at least at half yearly intervals.