The bank has also decided to prescribe a comprehensive cyber security framework for UCBs (Aniruddha Chowdhury/Mint)
The bank has also decided to prescribe a comprehensive cyber security framework for UCBs (Aniruddha Chowdhury/Mint)

Stung by PMC, RBI to frame norms to limit exposure to one group

  • The central bank on Thursday said it would amend guidelines for primary (urban) co-operative banks
  • The guidelines would primarily relate to exposure norms for single and group/interconnected borrowers, promotion of financial inclusion, priority sector lending, among others

Alarmed by the scam at Punjab and Maharashtra Co-operative Bank (PMC) where the bank had a high exposure to just one group, HDIL, the Reserve Bank of India (RBI) will take steps to make sure there’s no repeat of such incidents. The central bank on Thursday said it would amend guidelines for primary (urban) co-operative banks with a view to minimize concentration risk in their exposures and to strengthen the role of such lenders in promoting financial inclusion.

A draft circular proposing the changes for eliciting stakeholder comments will be issued shortly.

The guidelines would primarily relate to exposure norms for single and group/interconnected borrowers, promotion of financial inclusion, priority sector lending, among others. These measures are expected to strengthen the resilience and sustainability of urban co-operative banks while protecting the interest of depositors, the central bank said in statement. An appropriate timeframe will be provided for compliance with the revised norms, it added.

In another move, against directed at improving compliance and governance norms at urban co-operative banks (UCB), the central bank today decided to put UCBs with assets of 500 crores and above under the CRILC reporting framework. Detailed instructions in this regard will be issued by December 31.

The Reserve Bank already has a Central Repository of Information on Large Credits (CRILC) to strengthen, supervise and timely detect financial distress at scheduled commercial banks, all India financial institutions and certain non-banking financial companies.

The bank has also decided to prescribe a comprehensive cyber security framework for UCBs. The framework would mandate implementation of progressively stronger security measures based on the nature, variety and scale of digital product offerings of banks. This would bolster cyber security preparedness and ensure that the UCBs offering a range of payment services and higher technology penetration are brought at par with commercial banks in addressing cyber security threats.

On 23 September, the RBI barred PMC Bank from carrying out any operations for the next six months, while capping deposit withdrawal at 1,000 per account which was relaxed later to 50,000. The central bank's action came after it found certain irregularities in the bank, including high exposure to one business entity, under-reporting of non-performing assets (NPAs) and large deposit withdrawals.

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