UBD. (PCB) BPD. Cir.No. 69 /09.22.010/2009-10 June 9, 2010
The Chief Executive Officer
All Primary (Urban) Cooperative Banks
Exposure to Real Estate and Commercial Real Estate sector – UCBs
Please refer to paragraph 2.3.1 of our Master circular UBD. PCB. MC. No. 1 / 13.05.000 / 2009-10 dated July 1, 2009 on Exposure Norms and Statutory / Other restrictions. In terms of the circular, the total exposure of UCBs to real estate including individual housing loans and commercial real estate is restricted to 15% of the total deposit resources of a bank. In view of the requests made by a few banks and the federation, it is clarified as under:
2. Finance extended to the eligible category of borrowers mentioned in paragraph 2 of the Master circular UBD.PCB.MC.No. 2 / 09.22.010 / 2009-10 dated July 1, 2009 will be eligible to be categorised as housing finance..
3. While the purpose of the loan shall determine whether the loans granted against the security of immovable property need to be classified as real estate loans, the source of repayment will determine whether the exposure is against commercial real estate. For this purpose, UCBs may be guided by the instructions in Annex 2 of circular UBD.PCB.Cir.No. 59 / 09.14.000 / 2009-10 dated April 23, 2010 (copy enclosed).
4. The ceiling of 15% may be reckoned on the total deposits of a bank based on the audited balance sheet as on March 31 of the previous financial year. The exposure for the purpose of computing the prescribed limit of 15% should take into account both fund based and non fund based facilities.
5. We advise that the existing paragraph 4.7.1 of Master circular on Housing Schemes UBD.PCB.MC.No. 2 / 09.22.010 / 2009-10 dated July 1, 2009 stands modified as under: “ UCBs may utilize up to 15% of their total deposit resources to provide housing, real estate and CRE loans ”. It is further advised that the working capital loans against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments, as provided for in paragraph 7 of the the Master Circular is exempted from the prescribed limit of 15%.
6. The above clarifications may be placed before the Board for their information.
Chief General Manager
Encl: As above