RBI Master Circular No: RBI/2012-13/51 (02-Jul-12) Master Circular on Investments by Primary (Urban) Co-operative Banks


Chief Executive Officers of
All Primary (Urban) Co-operative Banks

Dear Sir,



Para No.  Subject 


Restrictions On Holding Shares in Other Co-operative Societies  


Statutory (SLR) Investments  


Investment Policy  


General Guidelines  


Transactions through SGL Accounts  


Use of Bank Receipts (BRs)  


Engagement of brokers  


Settlement of Government Securities Transactions through CCIL  


Trading of Government Securities on Stock Exchanges  


Ready forward contracts in Government Securities  


Guidelines for accounting of Repo/Reverse Repo transaction  


Non- SLR Investments  


Internal Control and Investment Accounting  


Recommendations of Ghosh Committee  


Categorisation of Investments  


Valuation of Investments  


Investment Fluctuation Reserve (IFR)  


Certain clarifications regarding brokers'' limits  


Definitions of certain terms  


Disclosure requirements for Non-SLR investments  


Guidelines for accounting of Repo/Reverse Repo transactions  


Recommended accounting methodology for Repo/Reverse Repo transactions  


Illustrative examples for accounting Repo/Reverse Repo transactions  


List of circulars consolidated in the Master Circular on Investments by primary urban co-operative banks  


List of other circulars from which instructions relating to investments have been consolidated in the Master Circular  



2.1 Act Provisions

Securities in which a trustee may invest money under clause (a), (b), (bb), (c) or (d) of Section 20 of the Indian Trust Act, 1882.

Such of the securities authorised by the Central Government under clause (f) of Section 20 of the Indian Trust Act, 1882 as may be prescribed.

2.2 Holding in Government/other approved Securities

2.2.1 All UCBs are required to maintain a certain minimum level of their SLR holdings as a percentage of their Net Demand and Time Liabilities (NDTL) as indicated below:

All Scheduled UCBs shall maintain SLR in the form of Government and other approved securities only.

Non-scheduled UCBs in Tier I were required to maintain SLR in the form of Government and other approved securities not less than 7.5 per cent of their NDTL by September 30, 2009 and 15 per cent of their NDTL by March 31, 2010.

Non Scheduled Tier II UCBs were required to maintain SLR in Government and other approved securities not less than 15 per cent of their NDTL by March 31, 2010.

From March 31, 2011 onwards all non-scheduled UCBs are required to maintain SLR in Government and other approved securities not less than 25 per cent of their NDTL.

2.2.2 In terms of the notification UBD.PCB.10/16.26.000/05-06 dated November 26 2008 published in Part III Section 4 of the Gazette of India (Extraordinary) dated December 15, 2008 the exemption granted to Tier - I non-scheduled UCBs vide notification UBD.PCB.6657/16.26.000/05-06 dated December 26, 2005 from maintaining assets in the form of cash, gold or unencumbered approved securities as prescribed in Section 24 of the Act ibid, to the extent of the amounts deposited by them with State Bank of India, subsidiary bank, corresponding new bank, and Industrial Development Bank of India Ltd., (name changed to IDBI Bank Ltd.) in interest bearing deposits, but not exceeding 15% of their total demand and time liabilities in India, (revised to 7.5% with effect from October 1, 2009) stands withdrawn effective from April 1, 2010.

2.3 Manner of Holding Mandatory Investments

2.3.1 The Securities may be held in either of the three forms viz: (a) Physical scrip form, (b) Subsidiary General Ledger (SGL) Account and (c) in a dematerialised account with depositories (NSDL/CDSL, NSCCL). In respect of securities with SGL facility, the SGL account can be maintained in the bank's own name directly with the Reserve Bank, or in a Constituent SGL Account opened with any scheduled commercial bank/state co-operative bank/Primary Dealer (PD) or Stock Holding Corporation of India Ltd. (SHCIL)

2.3.2 All UCBs are required to maintain investments in Government Securities only in SGL Accounts with Reserve Bank or in CSGL Accounts with PDs, scheduled commercial banks, state co-operative banks, scheduled UCBs as at paragraph 2.3.3 below, depositories and SHCIL.

2.3.3 Scheduled UCBs with net worth of Rs. 200.00 crore or more and having CRAR of 10% and above are eligible to open and maintain Constituent Subsidiary General Ledger (CSGL) accounts.

2.3.4 All licensed UCBs (other than those under all inclusive directions) are permitted to open SGL accounts with the Reserve Bank of India.


3.1 Keeping in view the various regulatory/statutory and the bank's own internal requirements, UCBs should lay down, with the approval of their Board of Directors, the broad Investment Policy and objectives to be achieved while undertaking investment transactions. The investment policy should be reviewed each year. The Board/Committee/Top Management should actively oversee investment transactions. Banks should not undertake any transactions on behalf of Portfolio Management Scheme (PMS) clients in their fiduciary capacity, and on behalf of other clients, either as custodians of their investments or purely as their agents.

3.2 The bank''s investment policy should clearly define the authority to put through deals, procedure to be followed for obtaining sanction of the appropriate authority, putting through deals, fixing various prudential exposure limits, and reporting system.

3.3 The investment policy of the bank should include guidelines on the quantity (ceiling) and quality of each type of security to be held on its own investment account. Bank should clearly indicate the authority to put through investment deals and the reporting system to be adopted. It should be prepared strictly observing the instructions issued by the Registrar of Co-operative Societies and the Reserve Bank from time to time and clearly spell out the internal control mechanism, accounting standards, audit, review and reporting system to be evolved.

3.4 All the transactions should be clearly recorded indicating full details. The Top Management should undertake a periodic review of investment transactions in a critical manner and put up large transactions to the Board, for information.

3.5 A copy of the internal investment policy guidelines framed by the bank with the approval of its Board should be forwarded to the Regional Office concerned of the Reserve Bank, certifying that the policy is in accordance with the prescribed guidelines and the same has been put in place. Subsequent changes, if any, in the Investment Policy should also be advised to the Regional Office of the Reserve Bank.


4.1 UCBs should not undertake any purchase/sale transactions with broking firms or other intermediaries on principal to principal basis.

4.2 No sale transaction should be put through by banks without actually holding the security in its investment account i.e. under no circumstances banks should hold an oversold position in any security. However, scheduled UCBs may sell a Government Security already contracted for purchase, provided:

4.2.1 the purchase contract is confirmed prior to the sale,

4.2.2 the purchase contract is guaranteed by CCIL or the security is contracted for purchase from the Reserve Bank and,

4.2.3 the sale transaction will settle either in the same settlement cycle as the preceding purchase contract, or in a subsequent settlement cycle so that the delivery obligation under the sale contract is met by the securities acquired under the purchase contract (e.g. when a security is purchased on T+0 basis, it can be sold on either T+0 or T+1 basis on the day of the purchase; if however it is purchased on T+1 basis, it can be sold on T+1 basis on the day of purchase or on T+0 or T+1 basis on the next day). Sale of Government Securities allotted to successful bidders in primary issues on the day of allotment, with and between CSGL constituent account holders is permitted.

4.3 For purchase of securities from the Reserve Bank through Open Market Operations (OMO), no sale transactions should be contracted prior to receiving the confirmation of the deal/advice of allotment from the Reserve Bank.

4.4 Banks should exercise abundant caution to ensure adherence to these guidelines. The concurrent auditors should specifically verify the compliance with these instructions. The concurrent audit reports should contain specific observations on the compliance with the above instructions and should be incorporated in the monthly report to the Chairman and Managing Director/Chief Executive Officer of the bank and the half yearly review to be placed before the Board of Directors. CCIL will make available to all market participants as part of its daily reports, the time stamp of all transactions as received from NDS. The mid office/back office and the auditors may use this information to supplement their checks/scrutiny of transactions for compliance with the instructions. Any violation noticed in this regard should immediately be reported to the Regional Office concerned of Urban Banks Department and the Public Debt Office (PDO), Reserve Bank of India, Mumbai. Any violation noticed in this regard would attract penalties as currently applicable to the bouncing of SGL forms even if the deal has been settled because of the netting benefit under DVP III, besides attracting further regulatory action as deemed necessary.

4.5 Banks successful in the auction of primary issue of Government Securities, may enter into contracts for sale of the allotted securities in accordance with the terms and conditions...

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