RBI asks urban co-operative banks not to lend to govt entities

The Reserve Bank of India (RBI) adviced urban co-operative banks (UCBs) on Wednesday to

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refrain from giving large loans to public sector or government entities, saying these transactions go against the core functions of these lenders.

RBI defined UCBS as needing to provide loans to lower and middle income groups, as well as agriculture and small businesses, instead of government-owned companies, which are called public sector undertakings (PSUs) in India.

"Grant of high value loans to PSUs is not consistent with the co-operative principles and dilutes the cooperative character of UCBs," the RBI said.

"In view of the above, UCBs are advised, as a matter of principle, generally not to grant large value loans to Public Sector/Government Undertakings."

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