RBI exempts UCBs’ investment in Umbrella Organisation from non-SLR holding limits

RBI has exempted investments made by Urban Co-operative Banks (UCBs) for subscribing to the capital of the Umbrella Organisation (UO) from the limits imposed on holding of non-Statutory Liquidity Ratio (non-SLR) securities. The move is expected to encourage UCBs to subscribe to the capital of UO and acquire its membership. The UO will be a non-banking finance company (NBFC).

According to the RBI’s 2009 circular on ‘Investments in Non-SLR securities by Primary (Urban) Co-operative Banks’, non-SLR investments will be limited to 10 % of a bank’s total deposits as on March 31 of the previous year. Further, investments in unlisted securities shall not exceed 10 % of the total non-SLR investments at any time.

Non-SLR securities include debentures/bonds, preference shares, equity shares, mutual fund units, commercial paper, and investment in securities issued by a securitisation/reconstruction company.

Some of the functions that the UO could perform include liquidity management for UCBs (those with surplus liquidity can park it with the UO, and those facing deficit could draw funds from it), establishing a common IT infrastructure, including payment gateways and data centres that could be shared by all banks, and facilitating mergers in the sector.

RBI had accorded regulatory approval to the National Federation of Urban Co-operative Banks and Credit Societies Ltd. (NAFCUB) in June 2019 for the formation of a UO for the UCB sector. The approval inter-alia permits UCBs to subscribe to the capital of the UO on a voluntary basis. As at March-end 2021, there were 1,534 UCBs in the country, according to the RBI.