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What is revised regulatory framework for UCBs?

Reserve Bank of India (RBI) has revised the regulatory framework for Primary (Urban) Co-operative Banks (UCBs).

What is the basis of revised regulatory framework?

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. Based on the recommendations of the committee, RBI has revised the regulatory framework for Primary (Urban) Co-operative Banks (UCBs) [What is revised regulatory framework for Urban Co-operative Banks (UCBs)]?

What are the revised norms for categorization of UCBs?

UCBs have been categorized into 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 ₹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

The deposits are reckoned as per audited balance sheet as on 31st March of the immediate preceding financial year.

If a UCB transits to a higher Tier on account of increase in deposits in any year, it may be provided a glide path of up to 3 years, to comply with higher regulatory requirements, if any, of the transited higher Tier.

What are the revised net worth requirements?

UCBs shall have minimum net worth as under –

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

UCBs which currently do not meet the minimum net worth requirement, as above, shall achieve at least 50% of the applicable minimum net worth on or before March 31, 2026 and the entire stipulated minimum net worth on or before March 31, 2028.

What are the revised CRAR requirement?

UCBs shall maintain minimum Capital to Risk Weighted Assets Ratio (CRAR) as under –

Category of UCBs Minimum CRAR requirement as a percentage of Risk Weighted Assets (RWAs)
Tier 1 Retained at 9%
Tier-2 to 4 Revised to 12%
UCBs which do not currently meet the revised CRAR of 12% of RWAs, shall achieve the CRAR of at least –
10% by March 31, 2024
11% by March 31, 2025
12% by March 31, 2026

From when are the revised norms on net worth and capital adequacy requirements applicable?

The revised norms on net worth and capital adequacy requirements for UCBs are applicable from April 01, 2023.

What are the revised guidelines on Revaluation Reserves?

Revaluation reserves, arising out of change in the carrying amount of a bank’s property consequent upon its revaluation, may henceforth be reckoned as Tier 1 capital at a discount of 55%, subject to meeting the following conditions –

  • The bank is able to sell the property readily at its own will and there is no legal impediment in selling the property.
  • The revaluation reserves are presented / disclosed separately under “Reserve Fund and Other Reserves” in the Balance Sheet.
  • Revaluations are realistic, in accordance with applicable accounting standards.
  • Valuations are obtained, from 2 independent valuers, at least once in every 3 years.
  • Where the value of the property has been substantially impaired by any event, these are to be immediately revalued and appropriately factored into capital adequacy computations.
  • The external auditors of the bank have not expressed a qualified opinion on the revaluation of the property.
  • The instructions on valuation of properties and other specific requirements are strictly adhered to.

Revaluation reserves which do not qualify as Tier 1 capital shall also not qualify as Tier 2 capital. The bank may choose to reckon revaluation reserves in Tier 1 capital or Tier 2 capital at its discretion, subject to fulfilment of all the conditions specified above.

What are the revised limits for housing loan?

Following are the revised limits for housing loans to be sanctioned by UCBs to an individual borrower –

Category of UCBs Limits on housing loans to be sanctioned by UCBs to an individual borrower
Tier 1 ₹60 lakh
Tier-2 to 4 ₹140 lakh

The above limits are effective from December 30, 2022. However, existing housing loans sanctioned prior this date, which may be in breach of the ceiling, will be allowed to run off till maturity.


References

Reserve Bank of India. (2022, December 30). 'Individual Housing loans – Revised limits under four-tiered regulatory framework'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12432&Mode=0

Reserve Bank of India. (2022, December 01). 'Revised Regulatory Framework - Categorization of Urban Co-operative Banks (UCBs) for Regulatory Purposes'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12416&Mode=0

Reserve Bank of India. (2022, December 01). 'Revised Regulatory Framework for Urban Co-operative Banks (UCBs) – Net Worth and Capital Adequacy'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12418&Mode=0


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