Place of the Board Meeting:MUMBAIDate of the Board Meeting:00/00/2013Resolution No.:00Subject Matter:Review and Revision of the Banks Investment Policy

INTRODUCTION :

Urban Co-Operative Banks (UCBs) have registered perceptible growth in terms of the number of banks, branch offices and volume of business. The deposits mobilized by these banks assumed sizeable proportion of the total deposits of the banking sector in India . Similarly , with the application of prudential norms, increased trading in securities by these banks in terms of turnover and range of instruments / maturities, it appears ,it became essential for the Reserve Bank of India (RBI), in the interest of the depositors, to ensure that the said investment are not fraught with undue risk. The RBI had, therefore , directed every UCB to put in place with the approval of the Board of Directors (BOD), a clear cut investment policy by taking into account its own internal requirements and extant statutory / regulatory frame work and review it each year. Accordingly , the Bank has since reviewed and revised its current investment policy (which was approved by the BOD on 00/00/2013) to make it complaint with the RBI instructions contained in the RBI Master Circular UBD BPD (PCB) MC No.12 dated July 1, 2011.

MAIN OBJECT:

The main object of the investment policy shall be to ensure that the Banks investments / disinvestments are consistent with the extent statutory provisions as well as regulatory instructions and are based on sound / acceptable banking as well as debt market practices and shall have minimal risk and maximum profit.

INSTRUMENTS ELIGIBLE FOR INVESTMENTS :The bank shall invest in / divest the following instruments (a) Central Government Securities (b) State Government Securities (c) Approved Securities, wherein payment of interest and repayment of principal is guaranteed by central or State Government (d) Commercial Papers, Debentures, Bonds, Units of the debt mutual funds and money market mutual funds provided they have A ` or equivalent and higher rating (e) Deposits with other banks for the purposes approved ceiling prescribed by the RBI (f) Shares of Co-operative institutions within the permissible ceiling/norms as per extant statutory / regulatory rules.

PURPOSE :The Banks investment in the above mentioned instruments shall be for (a) maintenance of SLR (b) trading in securities (c) earmarking towards reserve fund etc. (d) Offering securities for financial accommodation and earning better return.

PRUDENTIAL LIMITS/NORMSThe Bank shall strictly observe various limits / norms etc. given here below while effecting investments and / or divestments.

Sr.No.ItemDetails

1SLR INVESTMENTSNot less than 25% of DTL further the bank is required to maintain SLR in G.Sec. and other Approved securities up to 25% of its NDTL

2Non SLR Investments(A or equivalent and higher rated Commercial Papers (CPs) debentures, bonds and units of debt mutual funds and money market mutual funds)Limited to 10% of the Banks deposits as on March 31, of the pervious year subject to prudential limits, exemptions and restrictions etc. prescribed in the enclosed RBI circular UBD BPD (PCB) MC.No. 12 dated 1 July 2011..

3Shares of Co-op InstitutionsAs per instruction contained in RBI Master Circular No. 12 dated July 1, 2011. regarding eligible institutions and the ceiling and sub ceiling on investments in the shares of co-operative institutions

Categorisation of Investments

Bank shall require to classify their entire investment portfolio (including SLR and Non-SLR securities) under three categories viz.

Held to Maturity (HTM)Available for Sale (AFS)Held for Trading (HFT)

Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals.

AUTHORITY :The Banks Investment Committee shall have the authority to take decisions on investment of funds in the permissible investments and/or ivestments of securities etc. held in the Banks investment portfolio.

PROCEDURE FOR SANCTIONING DEALSThe CEO, on critical analysis of the fund position vis-a-vis the investments held .shall prepare a proposal for investment/ divestment . The said proposal shall contain the following important details / Information :

(a) Precise need(b) Description for investment / divestment(c) Competitive rates obtained form different sources(d) The use of services of the broker, if any.(e) Counter party details(f) Effect if any, on the Banks present / future profitabilityA detailed proposal as above , shall be placed before the Investment Committee for orders.

PROCEDURE FOR EXECUTING DEALS :The CEO, on getting approval of the Investment Committee, shall arrange for confirmation of the deal with counter party concerned and ensure completion of all intimations / authorizations etc. in this behalf. The relevant set of papers shall be handed over to back office for effecting transactions / accounting and monitoring receipts of funds/ G-secs and /or bonds etc.

GENERAL GUIDELINES :(a) All securities transactions shall be on the Banks own investment account and on outright basis.(b) The Bank shall have CSGL and DEMAT Accounts for the Govt. securities and non-SLR bonds respectively.(c) Govt. security transaction shall be through CSGL A/c and non SLR securities transactions shall be through the Banks DEMAT A/C.(d) Fund / stock position shall be ensured before structuring each deal.(e) The Bank, with the approval of the Board, shall prepare every year, a list of approved brokers who are SEBI registered and are members of BSE or NSE or OTCEL.(f) The services of the brokers shall only be used to bring two parties together and not as counter parties.(g) A ceiling of 5% of total transactions (both sales and purchases) entered into the Bank during a year, shall be an aggregate upper contract limit for each of the approved brokers.(h) The Bank shall seek scheduled bank, a Primary Dealer, a Financial Institution, an Urban co-operative Bank, Insurance Company, Mutual Fund or Provident Fund as a counter party for SLR securities transactions and commercial banks and PDs only for non-SLR transactions.(i) The Bank shall take advantage of non-competitive bidding facility provided by RBI for acquiring Govt. Securities in primary auctions.(j) All security transactions entered during the month will be put up to the Board of Directors for ratification every month. Further, the Board shall effectively supervise the security trade operations.(k) The Bank shall meticulously follow other instructions issued by RBI regarding categorization of the entire investment portfolio, shifting among different categories, valuation, provisioning / amortization, accounting and reporting, vide its master circular UBD BPD (PCB). MC No. 12 dated July 1, 2011.(l) Officials dealing with purchase/sale transactions shall be separate from those responsible for settlement and accounting.(m) While buying securities for SLR purpose, the Bank shall ensure from the counter parties concerned that the said securities / bonds have and would continue to have SLR status. The Bank shall also verify this from independent source/s, in case of doubt.(n) The Bank shall seek the guidance of PDAI / FIMMDA on investment in Government Securities.

Empanelment of Brokers:The Investment Committee shall consider application from brokers, fulfilling following criterions, for their empanelment.1 The broker must be duly registered with NSE/BSE or OTCET2 The broker should have sufficient experience of treasury operations3 The broker must submit certified copies of balance sheet, computation of net worth etc.4 The broker should submit verifiable list of constituents with whom he deals on a regular basis.5 The committee has a right to approve or disapprove any application and its decision will be final.6 In a later course, if bank finds services of any broker unsatisfactory, the committee shall exclude his name from the panel.7 The Bank will appoint as many broker on the panel as may be requiredINTERNAL CONTROL :The Bank shall exercise internal control as under :(a) Each transaction entered into, shall have a deal slip containing all important details viz. description of the security, face value, price, maturity date, contract date and time, counter party to the deal, use of services of a broker, if any. The Bank shall have a system of issue of confirmation to the counter party concerned.(b) The deal slips shall be serially numbered, controlled separately and properly accounted for.(c) Complete record of all investment transactions shall be maintained in a suitable register or in the suitable computerized e- form on the basis of vouchers passed on verification of contract notes and deal confirmations from the counter parties.(d) Separate record of broker wise details of deals, if any, shall be maintained.(e) All securities transactions (SLR and non-SLR) shall be subjected to internal audit on quarterly basis for the quarter ending June, September, December and March every year.Further the said auditors report shall be put up to the BOD within one month from the respective quarter for information necessary action.(f) The above said auditors shall also certify that the investments held by the Bank, as on the last reporting Friday of quarter and as reported to the RBI are actually owned/held by it, as evidenced by the physical securities and/or out-standings statement (holding certificate).

RISK MANAGEMENT MECHANISM ;The Investment committee of the Bank shall regularly watch the bond market prices/ trends for assessing the precise risk perception in respect of the Banks non-SLR investments. Based on the said assessment , the committee shall arrive at cut loss limits for holding / divesting the said non-SLR investments. Thereafter, the committee shall submit its recommendation to the BOD for consideration.

ACCOUNTING SYSTEM :The Bank shall continue to show the investments at book value (with details such as face value and market value) vide item 4 of "Property and Assets column of form A of Balance Sheet as provided in III schedule to the B.R. Act 1949 (AACS), with suitable provision representing difference between book value and market value out of current profit of the Bank and shown as investment Depreciation Reserve vide item 2 (vii) of the "Capital and Liabilities column of the form A mentioned above.

CREATION OF INVESTMENT FLUCTUATION RESERVE (IFR)With a view to building up of adequate reserve to guard against market risk, the Bank shall create IFR out of gains realized on sale of securities etc. subject to availability of net profit, of minimum of 5% of the investment portfolio. However, there is no outer limit in this behalf.

PRUDENTIAL DISCLOSURE NORMS :The Bank shall, as per RBI UBD Master circular No.12 01 July 2011 for investment in non-SLR Securities, make disclosures in the Notes on Accounts of the Balance sheet in respect of its Non- SLR investments regarding issuerwise composition of non-SLR investment and non performing Non-SLR investments, if any as per Proforma annexed to the above mentioned RBI Master .

Placement of deposits with other banks

Prudential Inter-bank (gross) exposure limitThe total amount of deposits placed by an bank with other banks(inter-bank) for all purposes including call money/notice money, and deposits, if any, placed for availing clearing facility, CSGL facility, currency chest facility, remittance facility and non-fund based facilities like Bank Guarantee, Letter of Credit, etc, shall not exceed 20 per cent of its total deposit liabilities as on March 31 of the previous year. The balances held in deposit accounts with commercial bank and in permitted scheduled banks and investments in Certificate of Deposits issued by commercial banks, being inter bank exposures, will be included in this 20 per cent limit.

Prudential inter-bank counter party limit

Within the prudential inter-bank (gross) exposure limit, deposits with any single bank should not exceed 5 per cent of the depositing banks total deposit liabilities as on March 31 of the previous year.

Exemptions from the prudential limit(a) As per the extant policy, the Bank in Tier I have been exempted from maintaining SLR in Government and other approved securities up to 15 per cent of their NDTL provided the amount is held in interest bearing deposits with the Public Sector Banks and IDBI Bank Ltd. These deposits are exempted from the prudential limit on inter-bank exposure limits(b) The balances maintained by bank with the Central Co-operative Bank of the district concerned or with the State Co-operative Bank of the State concerned are treated as SLR under the provisions of Section 24 of the Banking Regulation Act, 1949 (AACS). These deposits are exempted from the prudential limit on inter-bank exposure limits.

The placement of deposits by bank with scheduled bank would continue to be as per the guidelines issued vide our circular BPD PCB Cir 46/16.20.00/2002-03 dated May 17, 2003. However, the amount of deposits placed by a bank with any scheduled bank should not exceed 5% of the depositing banks total deposit liabilities as on March 31 of previous year. The total inter bank deposits accepted by a scheduled bank should not exceed 10% of its total deposit liabilities as on 31st March of the previous financial Year. The Board should review the position at least at half year interval.

REVIEW OF INVESTMENT TRANSACTIONS :The Bank shall undertake half yearly reviews, as on 30th September and 31st March of the investment portfolio which shall comment on prudential, Operational etc. aspects and clearly indicate about/ certify adherence to RBI guidelines on the subject.

The said review shall be put up the Board of Directors within one month i.e. on or before 30th April and 31st October every year.

The Bank shall also review the following aspects of Non- SLR investment at least at half yearly intervals :

(a) Total business (investment and divestment ) during the reporting period.(b) Compliance with prudential limits prescribed for Non-SLR investment.(c) Compliance with the prudential guidelines issued by Reserve Bank on Non-SLR securities.(d) Rating migration of the issuers/ issues held in the Banks bookand consequent diminution in the portfolio quality.(e) Extent of non-performing investments, if any , in the Non-SLR category and sufficient provision thereof.

REPORTING :The Bank shall submit the certificates and reports to the Reserve Bank of India, on the stipulated dates :

(a) Quarterly Investment Holding certificates, duly certified by the Internal Auditors, as on the last reporting Friday and as reported to the RBI are actually owned/held by the bank as evidenced by the physical securities and/or out-standings statement (holding certificate)(b) Half yearly review reports as on 31st March and 30th September every year by 15th May and 15 November respectively.

REVIEW OF INVESTMENT POLICY:The Bank shall review its investment policy every year to ensure that it is complaint to its own internal requirements as well as to the statutory provisions and regulatory instructions in force. During the said review of the policy, the Bank shall also ensure that it provides for the nature and extent of investment indented to be made in the permitted non-SLR investments, risk parameters, cut loss limits for holding/ divesting them, proper risk management system for analyzing the risk in respect of non-SLR investments and taking timely remedial measures.

"Resolved that the Banks Investment Policy hence forth be as proposed above

Proposed by:Seconded by:

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