UCBs' priority loan target cut to 40%

The Reserve Bank of India (RBI) has slashed the priority sector lending (PSL) target for Urban Cooperative Banks (UCBs) to 40 per cent from 60 per cent of adjusted bank credit to bring regulatory norms for them on a par with that for commercial banks.

The revised target norm will come into effect from April 2008. The target (40 per cent) will be decided as higher of adjusted bank credit or credit equivalent amount of off balance sheet exposure as on March 31 of the previous year.

The regulatory framework for UCBs has become more or less comparable with that of commercial banks, especially on capital adequacy ratio, income recognition, asset classification and provisioning norms, the RBI said in a communication to banks.

The communication also said that the government of India has withdrawn income tax exemption enjoyed by UCBs.

The RBI further said that the justification for a higher target of priority sector advances for UCBs vis-à-vis commercial banks on the grounds of lower statutory pre-emption of funds by way of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) does not hold good any longer in view of the gradual reduction of CRR and SLR norms for commercial banks over the years.

Maharashtra UCB Federation chairman Kailash Agarwal said under priority lending, UCBs had high exposure to segments like Small-Scale Industry and self-employment, adding that such credit carried high risk of defaults.

"The share of bad assets from the PSL in total NPAs of UCBs was high... We wanted UCBs to be treated on a par with commercial banks...," he said.