The Reserve Bank of India (RBI) has increased the prudential inter-bank exposure limit for the urban cooperative banks (UCBs) to 20 per cent of their total deposit liabilities.
Earlier, prudential inter-bank exposure limit — the total amount of deposits placed by an UCB with other banks — was capped at 10 per cent of its total deposit liabilities as on March 31, 2008.
The prudential exposure includes instruments such as call money/notice money, and deposits placed for availing clearing facility, CSGL facility, currency chest facility, remittance facility and non-fund based facilities such as bank guarantee (BG) and letter of credit (LC).
“The balances held in deposit accounts with commercial banks and in permitted scheduled UCBs and investments in certificate of deposits issued by commercial banks, being inter-bank exposures, will be included in this 20 per cent limit,” said a release from RBI dated January 30, 2009.
Similarly, exposure to any single bank, which was earlier capped at 2 per cent of the UCB’s total deposit liabilities, has been increased to 5 per cent of the same, as on March 31, 2008. Non-scheduled UCBs having a deposit base of Rs 100 crore or less, have been exempted from the above guidelines provided their deposits are held in interest bearing instruments with public sector banks and IDBI Bank.
Guidelines for merger
RBI would take support from the Deposit Insurance and Credit Guarantee Corporation (DICGC), transferee bank and large depositors while protecting the deposits, in case of mergers pertaining to UCBs having negative net worth. “Deposits of the acquired bank might be protected by an amalgamation scheme that would provide for payment to depositors under DICGC Act 1961, contribution by transferee bank and sacrifice by large depositors,” the central bank said.
More From This Section
The minimum deposit coverage ratio in such cases would be 65 per cent and the regulator might insist upon higher coverage depending on its assessment. Irrespective of the amount, all the depositors and unsecured creditors of the acquired UCB would be paid by the transferee bank at par with the coverage ratio.
“After pro-rata payment to the depositors and unsecured creditors by the transferee bank, the insured depositors would be paid the claim amount as on when received from DICGC to the extent and in the manner prescribed under Section 16(2) of the DICGC Act,” RBI said.
The central bank also said that while carrying out the due diligence, independent auditors could be appointed by the transferee bank with a concurrence of DICGC.