Every fiscal year, RBI requests that UCB Boards evaluate their loan policies

27 Jul 2022 , 09:04 AM

“It is advised that the loan policy of the bank shall be reviewed by the Board at least once in a financial year” the RBI stated in a notification on Tuesday. “This is to ensure that the loan policy reflects approved internal risk appetite and remains in accordance with the extant legislation.” The aforementioned directives are effective right away, according to RBI.

The banking regulator emphasized that not only do these policies not provide complete coverage, but they also don’t call for regular reviews, as has been seen in several UCBs. According to the RBI’s April master guidelines, UCBs are required to establish transparent policies and guidelines for credit dispensation in respect of each major category of economic activity, with the approval of their boards, while taking into account the credit exposure norms and various other guidelines periodically issued by the Reserve Bank.

A number of actions have been taken by RBI to strengthen the cooperative banking system. According to recent guidelines released earlier this month, the banking regulator has set a minimum net worth of Rs2 crore for Tier-I UCBs operating in a single district and Rs5 crore for all other UCBs (of all tiers), which is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth.

All unit UCBs, salary earner UCBs (regardless of deposit size), and all other UCBs with deposits up to Rs100 crore include Tier 1 UCBs; Tier 2 UCBs would be those with deposits over Rs100 crore and up to Rs1,000 crore; Tier 3 UCBs would be those with deposits over Rs1,000 crore and up to Rs10,000 crore; and Tier 4 UCBs are those with deposits over Rs10,000 crore.

The RBI has decided to introduce an automatic route for branch development to UCBs that meet the updated conditions in order to increase growth opportunities in the industry. In order to save on capital, it was determined to allocate risk weights for mortgage loans only based on the Loan to Value (LTV) Ratio. According to RBI, this will be applicable to all UCB Tiers.