RBI asks UCBs to make higher provisions for inter-bank exposures

The Reserve Bank issued fresh provisioning norms for urban cooperative banks’ inter-bank exposure as well as valuation of their perpetual non-cumulative preference shares and equity warrants, directing them to continue making provisions to the tune of 20% for such exposures.

The banking regulator came up with these rules in the wake of the bankruptcy of the corruption-ridden Punjab & Maharashtra Cooperative Bank (PMC) in September 2019 and the subsequent merger of the cooperative bank with Unity Small Finance Bank, which came into effect from January 25, 2022.

Earlier, similar directions were issued after the board of the largest cooperative bank was superseded by the RBI and the subsequent circulars on these matters issued on April 20, 2020 and on January 25, 2022.

“UCBs shall continue to make provisions on inter-bank exposures arising from outstanding uninsured deposits, as under the April 20, 2020 circular until the actual allotment of PNCPS (Perpetual Non-Cumulative Preference Shares)/equity warrants,” the RBI said.

It also said the new norms are applicable for all Urban Cooperative Banks (UCBs) and are in force with immediate effect.

The RBI said the new circular has been warranted by the fact that UCBs have met the conditions already laid out.