Skip to main content

What is revised regulatory framework for Urban Co-operative Banks (UCBs)?

Reserve Bank of India (RBI) has revised the regulatory framework for Urban Co-operative Banks (UCBs) based on the recommendations of the Expert Committee on Urban Co-operative Banks.

Expert Committee on Urban Co-operative Banks 

Reserve Bank of India (RBI) had constituted the Expert Committee on Urban Co-operative Banks on February 15, 2021, under the Chairmanship of Shri N. S. Vishwanathan, former Deputy Governor, RBI.

The Committee was constituted to examine the issues in urban co-operative banking sector, provide a medium-term road map, suggest measures for faster resolution of UCBs and recommend suitable regulatory / supervisory changes for strengthening the sector by leveraging the amendments to Banking Regulation Act, 1949 (As Applicable to Cooperative Societies). 

What were the recommendations of the Committee?

The Committee had a vision of turning UCBs into friendly neighborhood banks. Some of the important recommendations of the Committee were –

  1. Four-tiered regulatory framework based on size of deposits of the banks and their area of operations.
  2. Differentiated regulatory approach for key parameters such as net worth, Capital to Risk-weighted Assets Ratio (CRAR), branch expansion and exposure limits. 
  3. Membership in an Umbrella Organization (UO).

Which of the Committee’s recommendations have been accepted by RBI?

Categorization of UCBs (recommendation accepted)

Category of UCBs UCBs in the category
Tier 1 All unit UCBs and salary earner’s UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore
Tier 2 UCBs with deposits more than ₹100 crore and up to ₹1000 crore
Tier 3 UCBs with deposits more than ₹1000 crore and up to ₹10,000 crore
Tier 4 UCBs with deposits more than ₹10,000 crore

Minimum net worth (recommendation accepted with modification)

Category of UCBs Minimum net worth requirement
Tier 1 UCBs operating in single district ₹2 crore
All other UCBs (of all tiers) ₹5 crore

Those UCBs which do not meet the requirement, will be provided a glide path of 5 years to achieve the minimum net worth in a phased manner in such a way that 50% of minimum net worth is achieved in 3 years and remaining 50% in next 2 years.

As per the data reported by UCBs as on March 31, 2021, most of the banks already comply with the requirement.

Minimum capital to risk weighted assets ratio (CRAR) requirement (recommendation accepted with modification)

Category of UCBs Minimum CRAR requirement
Tier 1 Retained at 9%
Tier 2, Tier 3, and Tier 4 Revised to 12%
To be achieved in a phased manner –
10% by March 31, 2024
11% by March 31, 2025
12% by March 31, 2026

As per the data reported by the banks as on March 31, 2021, most of UCBs have CRAR more than 12% (1274 banks out of 1534). 

Branch Expansion (recommendation accepted with modification)

Automatic route is being introduced for branch expansion in the area of operation to those UCBs in all Tiers (except Salary Earners’ Banks) which meet revised Financially Sound and Well Managed (FSWM) criteria and they will be permitted to open new branches up to 10% of the number of branches at the end of previous financial year subject to minimum of one branch and a maximum of 5 branches.

Apart from the above, the branch expansion through the approval route under the existing framework will also continue. However, the process of granting approvals will be simplified to reduce the time taken for opening new branches.

LTV ratios for Housing Loan (recommendation partially accepted)

In respect of housing loans, the risk weights will be assigned 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 (recommendation accepted)

Revaluation Reserves will be considered for inclusion in Tier-I capital subject to applicable discount on the lines of scheduled commercial banks.

Umbrella Organization for UCB Sector (recommendation under further examination)

RBI has accorded regulatory approval for setting up of an Umbrella Organisation (UO) for UCB sector which will have a paid-up capital of ₹300 crore. Accordingly, National Cooperative Finance and Development Corporation Limited (NCFDC) has been incorporated, which is in the process of enrolling UCBs as members.

The Committee has also made certain recommendations regarding Umbrella Organization for UCB Sector which will be examined once the entity is fully operational.

Capital augmentation under Banking Regulation Act, 1949 (recommendation under further examination)

In order to examine the issues concerning recommendation for capital augmentation under the provisions of Section 12 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), a Working Group comprising the representatives from RBI, Securities and Exchange Board of India (SEBI) and Ministry of Co-operation, Government of India has been constituted.


References

Reserve Bank of India. (2021, August 23). 'Report of the Expert Committee on Urban Co-operative Banks'. Retrieved from https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1185

Reserve Bank of India. (2022, July 19). 'List of recommendations1 of “Expert Committee on Urban Co-operative Banks”'. Retrieved from https://rbidocs.rbi.org.in/rdocs/content/pdfs/RRF19072022_A.pdf

Reserve Bank of India. (2022, July 19). 'Revised Regulatory Framework for Urban Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54059


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Highlights of RBI Annual Report 2023-24 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the fifth and last article in the series.  Chapter 7 – Public Debt Management Ways And Means Advances (WMA) limit for the Government of India (GoI) for H1:2023-24 (April to September 2023) was fixed at ₹1,50,000 crore and for H2:2023-24 (October 2023 to March 2024) was fixed at ₹50,000 crore. RBI issued an ultra-long security of 50-year tenor aggregating ₹30,000 crore to cater to the growing needs of long-term institutional players. Issuance of Sovereign Green Bonds (SGrBs) for an aggregate amount of ₹20,000 crore included maiden issuance of 30-year (₹10,000 crore) SGrB in addition to 5-year (₹5,000 crore) and 10-year (₹5,000 crore) SGrBs. A new 3-year benchmark security was introduced as part of government market borrowing programme during H1:2023-24.  The basket of products offered through the ‘Retail ...
Post a Comment
Read more

RBI’s Monetary Policy (August 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on August 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Unchanged 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real GDP growth for 2025-26 is projected at 6.5%. CPI headline inflation declined for the eighth consecutive month to a 77-month low (since January 2019) of 2.1% in June, driven primarily by a sharp decline in food inflation. Food inflation recorded its first negative print since February 2019 at (-) 0.2% in June. CPI inflation for 2025-26 is projected at 3.1%. India’s current account deficit (CAD) moderated to 0.6% of GDP in 2024-25 from 0.7% of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit. As on Augus...
Post a Comment
Read more

What is Financial Inclusion (FI) Index?

Achieving complete financial inclusion is one of the important goals of the nations and central banks across the world. But how do we measure the extent to which the population of the country is financially included? Well, there is an index in India for this. What is Financial Inclusion (FI) Index? The composite Financial Inclusion (FI) Index was constructed by Reserve Bank of India (RBI) in August 2021, to capture the extent of financial inclusion across the country. FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with Government and respective sectoral regulators.   What are the parameters of FI-index? The FI-index comprises of three broad parameters (comprising of 97 indicators) with different weights assigned to each parameter. Ease of Access (35%) Availability and usage of services (45%) Quality of services (20%) The 'Quality' parameters captures the qua...
Post a Comment
Read more

Co-Lending Arrangements (CLAs)

Reserve Bank of India (RBI) has issued directions on co-lending arrangements which will replace the existing guidelines on co-lending by banks and Non-Banking Financial Companies (NBFCs) to priority sector. What is Co-Lending Arrangement (CLA)? Co-Lending Arrangement (CLA) refers to an arrangement, formalised through an ex-ante agreement, between a regulated entity (RE) which is originating the loans (‘originating RE’) and another RE which is co-lending (‘partner RE’), to jointly fund a portfolio of loans, comprising of either secured or unsecured loans, in a pre-agreed proportion, involving revenue and risk sharing. To whom shall the directions be applicable? The directions shall be applicable to CLAs entered into by the following REs – Commercial Banks (excluding Small Finance Banks, Local Area Banks and Regional Rural Banks) All-India Financial Institutions Non-Banking Financial Companies (including Housing Finance Companies) Which lending arrangements are exempt from the applicabil...
Post a Comment
Read more

Pre-payment Charges on Loans

Reserve Bank of India (RBI) has issued directions on pre-payment charges on loans. What issues were observed by RBI during supervisory reviews? Divergent practices were observed amongst Regulated Entities (REs) with regard to levy of pre-payment charges in case of loans sanctioned to Micro and Small Enterprises (MSEs) which lead to customer grievances and disputes.  Certain REs were found to include restrictive clauses in loan contracts / agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service. To whom shall the directions be applicable? The directions shall apply to all commercial banks (excluding payments banks), co-operative banks, Non-Banking Financial Companies (NBFCs) and All India Financial Institutions (AIFIs). To which loans shall the direction be applicable? The directions shall be applicable to all floating rate loans and advances sanctioned or renewed on or after January 01, 2026. Which ...
Post a Comment
Read more