“In order to ensure that the loan policy reflects approved internal risk appetite and remains in alignment with the extant regulations, it is advised that the loan policy of the bank shall be reviewed by the Board at least once in a financial year” the RBI said in a notification on Tuesday. The above instructions will come into effect immediately, RBI said.
The banking regulator noted that it has been observed in several UCBs that these policies not only lack comprehensive coverage, but also do not require a periodic review. According to the April master guidelines issued by RBI, UCBs are required to lay down, with the approval of their boards, transparent policies and guidelines for credit dispensation, in respect of each broad category of economic activity, keeping in view the credit exposure norms and various other guidelines issued by Reserve Bank from time to time.
RBI has been taking a series of measures to strengthen the co-operative banking structure. The banking regulator has prescribed a minimum net worth of Rs 2 crore for Tier-I UCBs operating in single district and Rs 5 crore for all other UCBs (of all tiers) which is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth, recent guidelines issued earlier in the month said.
Tier 1 – UCBs are all unit UCBs and salary earner’s UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs 100 crore; Tier 2 – UCBs would be those with deposits more than Rs100 crore and up to Rs1000 crore; Tier 3 – UCBs would be with deposits more than Rs 1000 crore and up to Rs 10,000 crore; Tier 4 – UCBs with deposits more than Rs 10,000 crore.
In order to boost growth opportunities in the sector, RBI has decided to introduce an automatic route for branch expansion to UCBs which meet the revised requirements. In respect of housing loans, it has been decided to assign the risk weights on the basis of Loan to Value (LTV) Ratio alone which would result in capital savings. This will be applicable to all Tiers of UCBs, RBI said.