The Reserve Bank of India (RBI) has decided to adopt a simple four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing urban cooperative banks (UCBs). The RBI has stipulated a minimum net worth of Rs 2 crore for Tier 1 UCBs operating in single district and Rs 5 crore for all other UCBs (of all tiers). “This is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth,” it said. As per the data reported by UCBs as on March 31, 2021, most of the banks already comply with the requirement. The UCBs which do not meet the requirement, will be provided a glide path of five years with intermediate milestones to facilitate smooth transition to revised norms, the central bank said. The RBI decision is based on the report submitted by NS Viswanathan Committee on UCBs. The minimum CRAR requirement for Tier 1 banks is retained at the present prescription of 9% under current capital adequacy framework based on Basel-1 rules. For Tier 2, Tier 3 and Tier 4 UCBs, while retaining the current capital adequacy framework, it has been decided to revise the minimum CRAR to 12% so as to strengthen their capital structure, the RBI said. “The increase in CRAR requirement is reasonable as these UCBs do not have full capital charge for market risk and currently maintain no capital charge for operational risk,” it said. As per the data reported by the banks as on March 31, 2021, most of UCBs have CRAR more than 12% (1274 banks out of 1534). Further, the banks that do not meet the revised CRAR will be provided with a glide path of three years for achieving the same in a phased manner. Accordingly, these banks will have to achieve a CRAR of 10% by the financial year ended March 31, 2024, 11% by March 31, 2025 and 12% by March 31, 2026. In order to boost growth opportunities in the sector, the RBI has decided to introduce automatic route for branch expansion to UCBs which meet the revised Financially Sound and Well Managed (FSWM) criteria and permit them to open new branches up to 10% of the number of branches as at the end of the previous financial year. While the branch expansion proposals under the prior approval route will also continue to be examined as hitherto, the process will be simplified to reduce the time taken for granting approvals for opening new branches, the RBI said. In respect of housing loans, it has decided to assign the risk weights on the basis of loan-to-value (LTV) ratio alone which would result in capital savings. This will be applicable to all Tiers of UCBs. Revaluation Reserves will be considered for inclusion in Tier-I capital subject to applicable discount on the lines of scheduled commercial banks. In order to examine the issues concerning recommendation for capital augmentation under the provisions of Section 12 of the Banking Regulation Act, 1949 (as amended) - applicable to co-operative societies - a Working Group comprising the representatives from the RBI, SEBI and Ministry of Co-operation, Government of India has been constituted. The committee has also made certain recommendations regarding Umbrella Organization for the UCB sector which will be examined once the entity is fully operational.
