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

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

Placement/Acceptance of Deposits

Scheduled Urban Co-operative Banks (UCBs) that meet certain criteria can accept deposits from other UCBs. These deposits should be part of specific service arrangements like clearing, foreign exchange transactions, or non-fund based facilities. However, they should not be in the nature of investment.

Non-scheduled UCBs can also accept deposits from other non-scheduled UCBs, mainly for clearing or remittance facilities, but not as investments.

UCBs are not allowed to place deposits with public sector entities (other than co-operative banks) or in State Government treasury savings accounts.

Prudential Limits

  1. The total inter-bank exposure limit is capped at 20% of a UCB’s total deposits as of the previous year’s March 31. This includes all types of deposits and investments in Certificates of Deposit.
  2. The limit for deposits placed with any single bank is 5% of the UCB’s total deposits as of the previous year’s March 31.
  3. The total inter-UCB deposits accepted by a UCB should not exceed 10% of its total deposits as of the previous financial year’s March 31.

Acceptance of Deposits by UCBs

UCBs can accept deposits from other UCBs if they meet criteria like minimum CRAR, NPA levels, profitability, compliance with CRR/SLR, having professional directors, and fully implemented Core Banking Solution (CBS).

UCBs failing to meet these criteria later must phase out accepted deposits according to a specified schedule. They can’t accept new deposits from UCBs or open new accounts for them during this phase-out period. If they meet the criteria again, they can resume accepting deposits.

Provisioning on Interbank Exposure of UCBs

  1. UCBs must fully provide for interbank exposures and non-performing exposures from discounted bills under LCs issued by UCBs under All-inclusive Directions (AID) within five years.
  2. If UCBs convert these deposits into long-term perpetual debt instruments recognized as capital instruments, no provision is required for the converted portion.
  3. UCBs facing difficulties in withdrawing deposits from weak State Cooperative Banks/Central Cooperative Banks must make a 10% annual provision on their exposure.

For the Punjab and Maharashtra Co-operative Bank Limited Scheme, UCBs must continue making provisions on inter-bank exposures from outstanding uninsured deposits until the allotment of Perpetual Non-Cumulative Preference Shares (PNCPS)/Equity Warrants. Provisions can be reversed only if they exceed any loss from the valuation of PNCPS and Equity Warrants.

Policy for Placement of Deposits

UCBs should have a policy for placing deposits with other banks. This policy should consider factors like liquidity needs, cost of funds, expected returns, counterparty risk, etc. The Board of Directors should review this policy at least every six months.

Repeal Provisions

With the introduction of these Directions, previous instructions and guidelines from the Reserve Bank, as listed in Annex III, are now repealed. All the guidance provided in those circulars is considered part of these new Directions. If other Reserve Bank Circulars, Guidelines, or Notifications refer to the repealed circulars, they should now be interpreted as references to these new Directions, namely, the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Primary (Urban) Co-operative Banks) Directions, 2023.

It’s important to note that any actions taken or initiated under the now-repealed circulars will still be governed by their original provisions.

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

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

Accounting and Provisioning by Urban Co-operative Banks

Restrictions on holding shares in other Co-operative Societies