RBI stipulates four-tier regulatory structure for urban co-op banks

The Reserve Bank of India (RBI) has issued a revised regulatory framework for Urban Cooperative Banks (UCBs) as per the recommendations of the expert committee formed under the Chairmanship of Mr. N S Vishwanathan.

Key highlights

RBI has decided to adopt a simple four-tiered regulatory framework based on the size of deposits of the banks and their area of operations.

• Tier 1 category will consist of all unit and salary earner’s UCBs, irrespective of deposit size. This category will also include all other UCBs having deposits of up to Rs 100 crore, the regulator said.

• Tier 2, will consist of UCBs with deposits of more than Rs 100 crore and up to Rs 1,000 crore.

• Tier 3, will be UCBs with deposits of more than Rs 1,000 crore and up to Rs 10,000 crore.

• Tier 4, will consist of UCBs with deposits of more than Rs 10,000 crore.

The UCBs that do not meet the requirement will be provided a glide path of five years to achieve the minimum net worth of Rs 2 crore or Rs 5 crore in a phased manner.

CRAR requirement

• The minimum capital to risk ­weighted assets ratio (CRAR) requirement for Tier 1 banks is retained at the present prescription of 9 percent under the current capital adequacy framework based on Basel I.

• For Tier 2, 3 and 4 UCBs, it has been decided to revise the minimum CRAR to 12 percent to strengthen their capital structure.

• The CRAR is the capital needed for a bank measured in terms of the assets (mostly loans) disbursed by the banks. Higher the assets, higher should be the capital by the bank.

Minimum net worth

• A minimum net worth of Rs 2 crore for Tier 1 UCBs operating in a single district and Rs 5 crore for all other UCBs (of all tiers) has been stipulated.

• The RBI said that this is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth

Automatic route for branch expansion

• RBI has decided to introduce an automatic route for branch expansion for UCBs, allowing them to open new branches as per the revised Financially Sound and Well Managed criteria.

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