RBI Clarifies PSL Shortfall Contributions by UCBs Not Part of Exposure

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  • Last Updated on 11 June, 2025

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PSL shortfall contributions

Circular No. RBI/2025-26/49 DoR.CRE.REC.28/07.10.002/2025-26; Dated: 09.06.2025

The Reserve Bank of India (RBI) has issued a clarification regarding the computation of exposure limits for Urban Cooperative Banks (UCBs), specifically in relation to contributions made toward Priority Sector Lending (PSL) shortfalls.

1. Existing Exposure Norms for UCBs

Under current regulations, UCBs are subject to the following exposure limits:

  • 15% of Tier-I capital for exposure to a single borrower
  • 25% of Tier-I capital for exposure to a group of connected borrowers

These limits are part of RBI’s prudential framework to ensure sound risk management within the cooperative banking sector.

2. Clarification on PSL Shortfall Contributions

The RBI has now clarified that contributions made by UCBs to eligible funds maintained with:

  • NABARD (National Bank for Agriculture and Rural Development)
  • NHB (National Housing Bank), or
  • Any other entity specified by the RBI

on account of shortfall in meeting PSL targets shall not be included in the calculation of the aggregate exposure of a UCB to such counterparties.

3. Implication of the Clarification

This clarification ensures that statutory or regulatory contributions toward PSL obligations—made to designated institutions—are not treated as credit exposure. This distinction helps UCBs:

  • Maintain compliance with exposure norms
  • Avoid unintended breaches of exposure limits due to mandatory PSL-related contributions
Click Here To Read The Full Circular

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied