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The Reserve Bank of India has asked urban co-operative banks (UCBs) not to grant large value loans to PSU firms saying their core purpose is to serve the low and middle income groups.
RBI said it was brought to its notice that some UCBs were sanctioning loans of big amount to public sector undertakings (PSUs) by admitting them as nominal members or otherwise.
"In view of the above, UCBs are advised, as a matter of principle, generally not to grant large value loans to Public Sector/Government Undertakings," RBI said in a communication addressed to UCBs.
UCBs are meant primarily to meet the credit needs of the society by providing loans and advances to low/middle income groups (small borrowers), agriculture and small businesses for furthering the cause of cooperation.
"Grant of high value loans to PSUs is not consistent with the co-operative principles and dilutes the cooperative character of UCBs," RBI added.
