Banking Regulations and Risk Management

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Questions and Answers

What is the primary focus of the Master Circular issued for Urban Co-operative Banks?

Financial reporting and accounting standards

Exposure norms and statutory restrictions (correct)

Customer service and complaints handling

Governance and management of UCBs

What type of advances have a specific ceiling?

Unsecured advances (correct)

Long-term advances

Short-term advances

Secured advances

What is a specific restriction mentioned in the Master Circular?

Granting loans to relatives of directors (correct)

Granting loans to defaulters of statutory dues

Granting loans to non-members

Granting loans to employees only

What type of activities are specifically mentioned in the Master Circular?

Agricultural activities Signup and view all the answers

What is a specific type of loan mentioned in the Master Circular?

Bridge loans Signup and view all the answers

What is the basis for determining Tier-I capital for the purpose of computation?

Prudential Norms on Capital Adequacy Signup and view all the answers

What type of exposure is included in the computation of credit exposure?

Funded and non-funded credit limits, and underwriting and similar commitments Signup and view all the answers

What type of entities are specifically mentioned in the Master Circular?

Non-banking financial companies Signup and view all the answers

What is excluded from credit exposure?

Loans and advances granted against the security of bank's own term deposits Signup and view all the answers

What is considered for arriving at credit exposure limit?

The higher of the sanctioned limit or outstanding amount Signup and view all the answers

What type of securities are included in investment exposure?

Non-SLR securities Signup and view all the answers

What is a necessary step for UCBs before admitting leasing/hire purchase companies as members?

Obtain prior approval of the Registrar of Co-operative Societies concerned Signup and view all the answers

What is the minimum working capital fund required for UCBs to finance NBFC-ICC?

₹25 crores Signup and view all the answers

What percentage of assets in equipment leasing and hire purchase is required for NBFC-ICC?

75% Signup and view all the answers

What is the maximum limit on bank finance for NBFC-ICC in terms of Net Owned Funds (NOF)?

3 times of NOF Signup and view all the answers

What type of leases are allowed for bank finance to leasing concerns?

Full payout leases Signup and view all the answers

What is the ceiling on borrowing by NBFCs in terms of Net Owned Funds (NOF)?

10 times of NOF Signup and view all the answers

Beyond the 10 per cent ceiling, what additional limit is allowed for granting housing loans to individuals?

5 per cent of total assets Signup and view all the answers

How can total assets be reckoned for the purpose of exposure norms?

Based on the audited balance sheet as on March 31 of the preceding financial year Signup and view all the answers

What type of loans given by UCBs is exempted from the prescribed limit?

Working capital loans against hypothecation of construction materials Signup and view all the answers

What is the maximum individual housing loan amount for Tier-1 UCBs?

₹60 lakh per individual borrower Signup and view all the answers

What is the guiding provision for Prudential Inter-bank Exposure Limit?

Chapter VIII of Master Direction on Classification, Valuation and Operation of Investment Portfolio of UCBs Signup and view all the answers

What is the governing provision for Placement / acceptance of Deposits by UCBs?

Chapter VIII of Master Direction on Classification, Valuation and Operation of Investment Portfolio of UCBs Signup and view all the answers

What is the date of the First Bi-monthly Monetary Policy Statement 2015-16?

28.03.2014 Signup and view all the answers

What is the subject of Master Circular No. 11?

Exposure Norms and Statutory / Other Restrictions Signup and view all the answers

What is the purpose of Circular No. 13/09.22.010/2013-14?

Loans for repairs / additions / alterations – enhancement of limits Signup and view all the answers

What is the subject of Circular No. 45/13.05.000/2012-13?

Unsecured credit exposure norms for UCBs Signup and view all the answers

What is the subject of Circular No. 31/13.05.000/2011-12?

Exposure to Housing, Real Estate and Commercial Real Estate Signup and view all the answers

What is the subject of Circular No. 69/09.22.010/2009-10?

Maximum Limit on Unsecured Loans and Advances Signup and view all the answers

Study Notes

Tier-I Capital and Exposure Norms

Tier-I capital for computation of capital adequacy of UCBs is as prescribed in Master Circular dated April 20, 2023, as amended from time to time
Exposure includes both credit exposure (Loans and Advances) and investment exposure (Non-SLR securities)

Credit Exposure

Credit exposure includes funded and non-funded credit limits, underwriting and similar commitments, and facilities extended by way of equipment leasing and hire purchase financing
Credit exposure excludes loans and advances granted against the security of bank's own term deposits
The sanctioned limit or outstanding whichever is higher shall be reckoned for arriving at credit exposure limit

Housing Loans and Real Estate Exposure

Ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per cent of total assets for the purpose of grant of housing loans to individuals
Total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding financial year
Working capital loans given by UCBs against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments is exempted from the prescribed limit
UCBs are not permitted to exceed the limit prescribed for grant of housing, real estate, commercial real estate loans to the extent of funds obtained from higher financing agencies and refinance from National Housing Bank
Tier-1 UCBs are permitted to extend individual housing loans up to a maximum of ₹60 lakh per individual borrower and UCBs categorized in Tier-2 to 4 can extend individual housing loans up to a maximum of ₹140 lakh per individual borrower subject to extant prudential exposure limits

Inter-bank Exposure Limit

UCBs shall be guided by provisions contained at Para 14.1 (a) of chapter VIII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023, as updated from time to time for Prudential Inter-bank (Gross) Exposure Limit
UCBs shall be guided by provisions contained at Para 14.1 (b) of chapter VIII of the Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of UCBs’ dated April 1, 2023, as updated from time to time for Prudential Inter-bank Counterparty Limit

Placement/Acceptance of Deposits and Other Restrictions

Placement/acceptance of deposits by UCBs shall be subject to instructions contained under Chapter VIII of Master Direction on Classification, Valuation and Operation of Investment Portfolio of UCBs dated April 1, 2023, as amended from time to time
UCBs are categorised under respective tiers in terms of the circular DOR.REG.No.84/07.01.000/2022-23 dated December 1, 2022
It is necessary for UCBs to obtain prior approval of the Registrar of Co-operative Societies concerned before admitting such leasing/hire purchase companies as members

Financing to NBFCs and Other Activities

UCBs, with working capital funds aggregating to ₹25 crores and above, may finance the NBFC Investment and Credit Companies (NBFC-ICC), subject to the following limits
Eligible NBFC-ICCs are those having not less than 75 per cent of their assets in equipment leasing and hire purchase, and 75 per cent of their gross income from these two types of activities as per the last audited balance sheet of the companies

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Description

Test your knowledge of banking regulations and risk management practices, including exposure norms, loan thresholds, and limits on unsecured advances. Learn about the rules governing banking operations and risk assessment.