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Large UCBs may be converted into commercial banks

A committee set up by the Reserve Bank of India has suggested that urban cooperative banks (UCBs) with a business size of Rs 20,000 crore and above should be allowed to convert themselves into commercial banks, while UCBs with business below Rs 20,000 crore should be made small finance banks. The committee headed by R. Gandhi, deputy governor, said a business size of Rs 20,000 crore or more may be the threshold limit beyond which a UCB may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory, it said. However, the types of businesses to be undertaken by those choosing not to convert may remain within the limits of plain vanilla products and services and hence, growth will be at a much slower pace. Their expansion in terms of branches, area of operations and business lines may thus be carefully calibrated, the committee added. Similarly, it said smaller UCBs with business size of less than Rs 20,000 crore willing to convert to small finance banks can apply to RBI for conversion provided they fulfill all the eligibility criteria and selection processes prescribed by the regulator and further provided that the licensing window for finance banks is open. The committee said licenses may be issued to financially sound and well-managed cooperative credit societies having a minimum track record of 5 years which satisfy the regulatory prescriptions set by RBI. The panel also proposed entry point norms for cooperative banks: Rs 100 crore capital to operate as a multi-state urban co-operative bank, Rs 50 crore capital for UCB beyond two districts and as a state level UCB and Rs 25 crore capital for district level UCBs (up to 2 districts). In the case of conversion of co-operative credit societies in unbanked areas and in the north-east, suitable relaxation may be made by the Reserve Bank, it said.

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