Reserve Bank of India (RBI) has issued new guidelines for Primary (Urban) Co-operative Banks (excluding Salary Earners’ Banks) regarding their contributions to eligible funds due to shortfalls in Priority Sector Lending (PSL) targets. Effective immediately, these contributions to entities like NABARD, NHB, SIDBI, and MUDRA Ltd. will no longer be counted when calculating a UCB’s aggregate exposure to these counterparties. This exemption means that these contributions will not impact the prudential exposure limits, which are set at 15% of Tier-I capital for a single borrower and 25% for a group of connected borrowers. However, for capital adequacy purposes, these contributions will still be categorized under “all other assets” and will incur a 100% risk weight. This clarification aims to provide a clearer framework for UCBs managing their PSL obligations and capital requirements.
RESERVE BANK OF INDIA
RBI/2025-26/49
DoR.CRE.REC.28/07.10.002/2025-26 Dated: June 9, 2025
Primary (Urban) Co-operative Banks other than Salary Earners’ Banks
Madam / Dear Sir,
Non-achievement of PSL targets – Prudential treatment of contribution towards eligible funds with NABARD, NHB, SIDBI and MUDRA Ltd.
A. Exemption from exposure norms
In terms of para 2.1 of circular DOR (PCB).BPD.Cir No.10/13.05.000/2019-20 dated March 13, 2020 on ‘Limits on exposure to single and group borrowers/parties and large exposures and Revision in the target for priority sector lending – UCBs’, the prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties are specified as 15 per cent and 25 per cent, respectively, of their tier-I capital.
2. On a review, it has been decided that the contribution1 by UCBs towards eligible funds with NABARD, NHB, SIDBI, MUDRA Ltd., or any other entity specified by RBI, on account of shortfall in PSL targets shall not be included while computing the aggregate exposure of a UCB to such counterparties for the purpose of deciding the above prudential exposure limits.
B. Risk weight
3. It is further clarified that contribution by UCBs towards above eligible funds on account of shortfall in PSL targets, shall fall under the category of ‘all other assets’, attracting a risk weight of 100 per cent2 for capital adequacy purposes, in terms of Annexure 1 of the RBI circular UBD.No.POT.PCB.Cir.No.45/09.116.00/2000-01 dated April 25, 2001 on ‘Application of Capital Adequacy Norms to Urban (Primary) Cooperative Banks’.
C. Applicability
4. The above instructions are applicable with immediate effect.
Yours faithfully,
(Vaibhav Chaturvedi)
Chief General Manager
Notes:
1 In terms of para 29 (i) of the RBI Master Direction FIDD.CO.PSD.BC.13/04.09.001/2024-25 dated March 24, 2025 on ‘Priority Sector Lending (PSL) – Targets and Classification’, as amended from to time.
2 ‘all other assets’ under head ‘other assets’ as per Annexure-1 of the circular.
