RBI adopts four-tiered regulatory framework for Urban Cooperative Banks (UCBs)

The Reserve Bank of India (RBI) has issued a revised regulatory framework for Urban Cooperative Banks (UCBs) based on the recommendation of the Expert Committee on Urban Co-operative Banks (the Committee) under the Chairmanship of Shri N. S. Vishwanathan, former Deputy Governor, RBI.
The Committee recommended a four-tiered regulatory framework for UCBs based on size of deposits of the banks and their area of operations.
These measures aims at strengthening the sector as well as offer more operational flexibility to strong UCBs to serve their desired role in credit intermediation.
The recommendation were made for 4 key parameters which are – net worth, Capital to Risk-weighted Assets Ratio (CRAR), branch expansion and exposure limits.

Net worth

For Tier 1 UCBs operating in single district a minimum net worth of Rs. 2 crore has been stipulated.
For all other UCBs (of all tiers), the net worth is of Rs. 5 crore.
This will strengthen the financial resilience of the banks and enhance their ability to fund their growth.

Capital to Risk-weighted Assets Ratio (CRAR)

For Tier 1 banks, the minimum CRAR requirement is retained at 9% under current capital adequacy framework based on Basel I.
For Tier 2, Tier 3 and Tier 4 UCBs, it has been decided to revise the minimum CRAR to 12% under current capital adequacy framework.

Branch Expansion

It has been decided to introduce automatic route for branch expansion to UCBs which meet the revised Financially Sound and Well Managed (FSWM) criteria. This will boost growth opportunities in the sector.
UCBs will be permitted to open new branches up to 10% of the number of branches as at the end of the previous financial year.

Exposure Limits

For 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.

Note:

Tier 1 – All unit UCBs and salary earner’s UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs. 100 crore;
Tier 2 – UCBs with deposits more than Rs. 100 crore and up to Rs. 1000 crore;
Tier 3 – UCBs with deposits more than Rs. 1000 crore and up to Rs. 10,000 crore;
Tier 4 – UCBs with deposits more than Rs. 10,000 crore.

Source: RBI