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RBI/2005-06/367
UBD.(PCB).BPD.Cir No: 46/13.05.000/2005-06
April 19, 2006
The Chief Executive Officers of
All Primary (urban) Co-operative Banks
Dear Sir/Madam,
Bills discounted under LC – Risk Weight and Exposure
Norms - UCBs
Please refer to our circular UBD.BPD.PCB.cir.
37/13.05.00/2003-04 dated March 16, 2004. In terms of para 2 (iv) of the circular,
the credit exposure on account of bills purchased / discounted / negotiated
under LCs or otherwise should be reckoned on the bank’s borrower constituent.
Accordingly, the exposure should attract a risk weight appropriate to the borrower
constituent (viz. 100% for firms, individuals, corporate, etc.) for capital
adequacy purposes.
2. The above instructions have been reviewed
and it has now been decided that :
i. Bills purchased / discounted / negotiated under LC (where
the payment to the beneficiary is not made ‘under reserve’) will be treated
as an exposure on the LC issuing bank and not on the borrower.
ii. All clean negotiations as indicated above in para (i)
above, will be assigned the risk weight as is normally applicable to inter-bank
exposures, for capital adequacy purposes.
iii. In the case of negotiations ‘under reserve’ the exposure
should be treated as on the borrower and risk weight assigned accordingly.
3. The above guidelines will come into operation
with immediate effect.
4. Please acknowledge receipt to the concerned
Regional Office of Reserve Bank of India.
Yours faithfully,
(N.S.Vishwanathan)
Chief General Manager in-Charge
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