Investment Portfolio of Primary (Urban) Co-operative Banks

Investment Portfolio of Primary (Urban) Co-operative Banks

Investment Policy

Urban Co-operative Banks (UCBs) need to have a clear investment policy. This policy should be approved by their Board of Directors. It should match the bank’s size, business complexity, risk management skills, staff, and technology. The policy should consider various factors like the bank’s needs and regulatory rules.

The investment policy should include:

  1. Investment goals and criteria. It should align with regulatory guidelines and the bank’s needs.
  2. Types of securities for investment.
  3. Types of derivatives for UCBs with an Authorized Dealer’s license, where allowed.
  4. Who has the authority to make deals.
  5. How to get approval for deals and execute them.
  6. Following limits on how much and what quality of each security type the bank can hold.
  7. Internal control, accounting, audit, review, broker dealings, risk management, portfolio valuation, and reporting systems.
  8. Plans for investing in non-SLR securities, risk management for these investments, stop-loss limits, and actions for risks.
  9. Risk management for non-SLR securities, including minimum credit ratings, limits based on industry, maturity, duration, issuer, etc., to reduce concentration and liquidity risks.
  10. The Investment Policy should be reviewed yearly.

General Instructions

  1. UCBs should only deal in securities for their own investment account. They should not manage investments for Portfolio Management Scheme (PMS) clients or other clients, either as custodians or agents.
  2. Investment proposals should go through the same credit risk analysis as loan proposals.
  3. UCBs should check the defaulters’ list from Credit Information Companies before investing.
  4. UCBs should do their own credit analysis and rating, even for rated issues. They should be extra careful with investments in instruments from non-borrower customers.
  5. UCBs need strong internal credit rating systems. This includes regular checks (quarterly or half-yearly) on the financial status of the issuer.
  6. UCBs should settle transactions in securities and derivatives, where allowed, as per the prescribed procedures.
  7. UCBs should keep their securities investments in dematerialized form.
  8. UCBs should not hold an oversold position in any security, unless specifically allowed in these Directions.

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

Investment in Non-SLR 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