RBI to resume ‘on-tap’ licensing of urban co-operative banks

Why in News?

The Reserve Bank of India (RBI) has announced a series of regulatory measures, including the resumption of ‘on-tap’ licensing for Urban Co-operative Banks (UCBs), a review of concentration risk norms for Rural Co-operative Banks (RCBs), and plans to rationalise the framework governing interest rates on advances. The measures were unveiled in the Statement on Developmental and Regulatory Policies, released alongside the Monetary Policy Committee (MPC) policy decision.

Key Announcements

1. Resumption of On-Tap Licensing for UCBs

• RBI will once again accept applications for new Urban Co-operative Bank (UCB) licences throughout the year under the on-tap licensing framework.
• On-tap licensing allows eligible institutions to apply for a banking licence at any time, instead of waiting for a specific application window.

2. Eligibility Criteria

Eligible credit co-operative societies must:

• Have been in existence for at least 10 years.
• Maintain minimum deposits of ₹10,000 crore.
• Have a minimum net worth of ₹300 crore.
• Ensure no member holds more than 5% stake.
• Be registered under the Multi-State Co-operative Societies Act, 2002 (in the first phase).
• Maintain a Capital to Risk-Weighted Assets Ratio (CRAR) of at least 12%.
• Maintain Net Non-Performing Assets (NNPA) of not more than 3% at the end of the previous financial year.

3. Application Process

• Applications can be submitted throughout the year via the RBI’s PRAVAAH portal.
• RBI will issue draft amendment directions for stakeholder consultation before final implementation.

4. Other Regulatory Measures

• Review of concentration risk norms for Rural Co-operative Banks (RCBs).
• Rationalisation of the interest rate framework on advances to improve transparency and efficiency.

About Urban Co-operative Banks (UCBs)

What are UCBs?

• Urban Co-operative Banks are co-operative financial institutions that accept deposits from the public and provide loans primarily to their members.
• Unlike ordinary co-operative societies, they mobilise savings from the general public and undertake banking activities.

Legal Status

• Large co-operative banks came under the Banking Regulation Act, 1949 from 1 March 1966.
• UCBs operate on co-operative principles while performing banking functions similar to commercial banks.

Dual Regulation of Co-operative Banks

Traditionally, co-operative banks were subject to dual regulation:

• RBI: Banking functions such as licensing, prudential regulation, liquidity, and monetary policy compliance.
• State Governments/Central Government: Governance, elections, audit, management, and winding up.
  • State Governments regulate single-state co-operative banks.
  • Central Government regulates multi-state co-operative banks.

Banking Regulation (Amendment) Act, 2020

The Banking Regulation Act, 1949 was amended in September 2020 to strengthen RBI’s regulatory powers over co-operative banks.

The amendment empowered RBI to:

• Regulate the appointment and qualifications of management.
• Supersede the Board of Directors under specified conditions.
• Strengthen governance and protect depositors’ interests.

Recent Reforms for Urban Co-operative Banks

• UCBs can open new branches up to 15% of existing branches (maximum 10 branches) in a financial year without prior RBI approval.
• RBI has permitted UCBs to provide doorstep banking services.
• Eligible UCBs can obtain Scheduled Bank status by being included in Schedule II of the RBI Act, 1934.
• The Priority Sector Lending (PSL) target for UCBs has been reduced from 75% to 60%, providing greater operational flexibility.
• The National Urban Co-operative Finance and Development Corporation (NUCFDC) has been established as an Umbrella Organisation (UO) to promote digitisation, technology adoption, and capacity building in the UCB sector.

Sources: PIB & Mint

CLICK HERE: UPSC PRELIMS & MAINS CURRENT AFFAIRS BASED WEEKLY TEST (ENG & HINDI)

CLICK HERE FOR GS TIMES PRAHAR UPSC GS MAINS TEST SERIES 

CLICK HERE: DAILY CURRENT AFFAIRS QUIZ (FOR ALL EXAMINATIONS)