Based on the recommendations of the Expert Committee on Urban Co-operative Banks (UCBs), the RBI has decided to adopt a four-tiered regulatory framework, as against the existing two-tiered framework, for the categorization of UCBs.
Given the heterogeneity in the cooperative sector, a tiered regulatory framework is required to balance the spirit of mutuality and cooperation more prevalent in banks of smaller sizes and those with a limited area of operation vis-à-vis the growth ambitions of the large-sized UCBs to spread their area of operation and undertake more complex business activities. Going forward, this categorization may be used for differentiated regulatory prescriptions aimed at strengthening the financial soundness of the UCBs, the RBI stated in a release.
The instructions shall be applicable with immediate effect to all UCBs.
The UCBs have been categorized into the following four tiers for regulatory purposes:
- Tier 1 – All unit UCBs and salary earners’ UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs 100 crore;
- Tier 2 – UCBs with deposits of more than Rs 100 crore and up to Rs 1,000 crore;
- Tier 3 – UCBs with deposits of more than Rs 1,000 crore and up to Rs 10,000 crore;
- Tier 4 – UCBs with deposits of more than Rs 10,000 crore.
The deposits referred to above will be reckoned as per the audited balance sheet as on
March 31 of the immediately preceding financial year. If a UCB transits to a higher tier on account of an increase in deposits in any year, it may be provided a glide path of up to a maximum of three years, to comply with higher regulatory requirements, if any, of the transited higher tier.
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