The Reserve Bank of India’s (RBI’s) expert committee on urban co-operative banks (UCBs) has suggested a four-tiered structure to regulate them, based on size of deposits.
The committee, headed by former RBI Deputy Governor NS Vishwanathan, has proposed setting up an umbrella organisation (UO) to oversee co-operative banks and suggested that they should be allowed to open more branches if they meet all regulatory requirements.
In its report, the panel said the RBI should not hesitate to use the route of mandatory merger to resolve UCBs that do not meet the prudential requirements. Beginning 2004-05 till March 2020, UCBs have undergone 136 mergers, with Maharashtra accounting for over half of them, closely followed by Gujarat.
According to the committee, based on the cooperativeness’ of the banks, availability of capital and other factors, UCBs may be categorised into four tiers for regulatory purposes: Tier 1 with all unit UCBs and salary earner’s UCBs (irrespective of deposit size) and all other UCBs having deposits up to Rs 100 crore, Tier 2 with UCBs of deposits between Rs 100 crore and Rs 1,000 crore, Tier 3 with UCBs of deposits between Rs 1,000 crore and Rs 10,000 crore and Tier 4 with UCBs of deposits more than Rs 10,000 crore. “The UO should be financially strong and be well governed by a professional board and senior management, both of which are fit and proper,” it said.
As an alternative to mandatory consolidation, the Committee preferred smaller banks acquiring scale via the network of the UO, which is one of the successful models of a strong financial cooperative system globally.