Ref. UBD. No. BPD.PCB.Cir. 34 /13.05.00/2003-04.
The Chief Executive Officers of all
Primary (Urban) Co-operative Banks
Maximum Limit on advances – Limits on credit Exposure to Individual/group of
borrowers - Computation of capital funds.
Please refer to para 2(ii) of circular UBD No. DS 4/13.05.00/2000-01
dated August 25, 2000 read with circular UBD No. DS.PCB.Cir.25/13.05.00/2000-01
dated January 18, 2001. Also please refer to para (b) 2.1 of Circular UBD No.
POT. PCB. Cir. No. 45/09.116.00/2000-01 dated April 25, 2001 in connection with
Capital Adequacy Norms to Urban (Primary) Co-operative Banks.
2. A number of banks have sought clarification in regard to
the reserves/funds, which should be included for arriving at the Capital Funds/Free
Reserves/Tier I capital. We have examined such references and advise that for
a fund to be included in the Capital Fund, the fund/reserve should satisfy the
under noted two criteria,
- The reserve/fund should be created as an appropriation of profit and
- It is a free reserve i. e. not a specific reserve.
For example, if the contingency fund has been created out of
the appropriation of profit and not a earmarked/specific fund, it will be eligible
for inclusion in Capital Fund. However if the same has been created not by appropriation
of profit, but by a charge on the profit, then this fund is in effect a provision
and hence will be eligible for being reckoned only as Tier II capital subject
to a limit of 1.25% of risk weighted assets, provided it is not attributed
to any identified potential loss or diminution in value of
an asset or a known
liability. In view of the above, it is clarified that the funds
like Centenary Celebration Fund, Dividend Equalisation Fund and Members uplift
Fund; etc may not be included in the Capital Fund as they are earmarked for
3. Please acknowledge receipt of this circular to our Regional