RBI Clarifies PSL Shortfall Contributions by UCBs Not Part of Exposure

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

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