RBI says no investment limit restrictions for primary UCBs to invest in umbrella body

The Reserve Bank of India (RBI) on March 3 said a rule that restricts primary urban cooperative banks (UCB) to invest in securities will not apply when investing in the umbrella organisation of UCBs.

In June 2019, the RBI had accorded regulatory approval to National Federation of Urban Co-operative Banks and Credit Societies Ltd. (NAFCUB) for formation of Umbrella Organization (UO) for the UCB sector. The approval permits UCBs to subscribe to capital of the UO on voluntary basis.

"It is advised that the investment made for subscribing to the capital of the UO, for acquiring its membership, shall be exempt from the limits," the RBI said.

According to a January 30, 2009 circular issued by the RBI on Investments in non-SLR securities by Primary Urban Co-operative Banks, the non-SLR investments shall be limited to 10 percent of a bank’s total deposits as on March 31 of the previous year.

Further, it states that investments in unlisted securities shall not exceed 10 percent of the total non-SLR investments at any time.

Earlier, an RBI committee had recommended setting up of an UO for the UCBs to strengthen the sector.

In fact, the idea of an UO was first mooted in 2006. The committee suggested it could be a game-changer and the National Federation of Urban Co-operative Banks and Credit Societies Ltd (NAFCUB) should expedite the process of setting it up.

According to the committee, UO should be financially strong, well-governed by a professional board and senior management. It also suggests that UO should provide cross liquidity and capital support to the UCBs when needed, the cloud services for facilitating IT-enabled operations by the member banks.