Investment in Non-SLR Securities by Urban Co-operative Banks

Investment in Non-SLR Securities by Urban Co-operative Banks

Non-SLR Instruments

Urban Co-operative Banks (UCBs) can invest in various non-SLR instruments:

  1. Corporate bonds rated “A” or higher.

Note: For deep discount/zero coupon bonds, the issuer must have a sinking fund for accrued interest in liquid investments or government securities.

  • Commercial Papers (CPs) and Certificate of Deposits (CDs) rated “A2” or higher.
  • Units of Debt Mutual Funds and Money Market Mutual Funds.

Note: UCBs should avoid excessive exposure to any one Mutual Fund scheme.

  • Equity shares of Market Infrastructure Companies (MICs) for membership.

Note: Eligible MICs are specified by RBI and include entities like Clearing Corporation of India Ltd. and National Payments Corporation of India.

  • Equity shares of Umbrella Organization of UCB sector for membership.
  • Security Receipts (SRs), Pass Through Certificates (PTCs), and other securities issued by Asset Reconstruction Companies (ARCs) as per RBI’s directions.
  • Equity Shares of Central Co-operative Banks (CCB) and State Co-operative Banks (StCB).
  • Shares of co-operative societies as allowed under banking regulations.

Note: UCBs should refer to RBI’s circular on holding shares in other co-operative societies.

UCBs should not invest in:

  1. Perpetual debt instruments.
  2. Mutual Fund units other than Debt Mutual Funds and Money Market Mutual Funds.
  3. Instruments with less than one-year maturity, except certain specified types.
  4. Shares outside the co-operative sector, unless RBI permits.

Secondary market transactions in non-SLR investments can be done with specific entities like commercial banks and mutual funds.

Prudential Limit

  • Investments in non-SLR securities are capped at 10% of the bank’s total deposits as of the previous year’s March 31.
  • Investment in unlisted non-SLR securities must meet minimum ratings and cannot exceed 10% of the bank’s total non-SLR securities.

Note: Specific rules apply for securities intended to be listed.

  • UCBs can exceed these limits for certain investments like shares of MICs, UCB Sector Umbrella Organization, CCBs/StCBs, and co-operative societies.

Note: UCBs must adhere to limits on holding shares in other co-operative societies.

All non-SLR investments must comply with prudential exposure limits.

Repo in Corporate Bonds

  • Only Scheduled UCBs meeting specific criteria can engage in repo transactions in corporate bonds.
  • These transactions must adhere to RBI’s Repurchase Transactions Directions.

Transactions in Commercial Papers (CPs) and Certificates of Deposits (CDs)

Investments in CPs and CDs must follow RBI’s guidelines.

Trading and Settlement in Corporate Bonds

  • Trades in listed corporate bonds must comply with SEBI guidelines.
  • OTC trades in corporate bonds must be reported and settled through specified clearing corporations.

Other Requirements

  • UCBs must ensure they don’t finance prohibited activities through non-SLR investments.
  • UCBs must disclose details of their non-SLR investments as specified by RBI.

Role of Boards

The Board should review non-SLR investment aspects quarterly, including business volume, compliance with limits and guidelines, rating migration, and non-performing investments.

Investment Portfolio of Primary (Urban) Co-operative Banks

Classification of Investments

Shifting Among Categories in the Investment Portfolio of UCBs

Valuation of Investments of Urban Co-operative Banks

Investments in Government Securities by Urban Co-operative Banks

Placement of Deposits with Other Banks/Institutions by Urban Co-operative Banks

Accounting and Provisioning by Urban Co-operative Banks

Restrictions on holding shares in other Co-operative Societies