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Cooperative Banking

RBI accepts 4-tiered framework with differentiated prescriptions for UCBs

The expert committee on urban cooperative banks under the chairmanship of NS Vishwanathan, former Deputy Governor, RBI, has made a number of recommendations, keeping in view the vision of turning UCBs into friendly neighbourhood banks and the heterogeneity of the sector.

The major recommendations which have been accepted are as follows: It has been decided to adopt a simple four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing UCBs. Specifically, 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) has been stipulated. This is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth. 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 minimum CRAR requirement for Tier 1 banks is retained at the present prescription of 9% under current capital adequacy framework based on Basel I. 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 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.

In order to boost growth opportunities in the sector, it has been 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.

In respect of housing loans, it has been 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.

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