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Provisioning for standard assets by UCBs

Reserve Bank of India (RBI) has revised norms of provisioning for standard assets by Primary (Urban) Co-operative Banks (UCBs).

What is standard asset?

Standard asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business. 

What was the earlier categorization of UCBs?

Earlier, the UCBs were categorised as –

  • Tier I UCBs –
    • Banks having deposits below ₹100 crore operating in a single district.
    • Banks with deposits below ₹100 crore operating in more than one district, provided the branches are in contiguous districts and deposits and advances of branches in one district separately constitute at least 95% of the total deposits and advances respectively of the bank.
    • Banks with deposits below ₹100 crore, whose branches were originally in a single district but subsequently, became multi-district due to reorganisation of the district.
  • Tier II UCBs – All other banks.

What is the basis of revised regulatory framework for UCBs?

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 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

What were the earlier standard assets provisioning norms for UCBs?

Category of Standard Asset Rate of Provisioning – Tier I UCBs Rate of Provisioning – Tier II UCBs
Direct advances to Agriculture and SME sectors 0.25% 0.25%
Commercial Real Estate (CRE) sector 1.00% 1.00%
Commercial Real Estate-Residential Housing Sector (CRE-RH) 0.75% 0.75%
All other loans and advances not included above 0.25% 0.40%

What are the revised standard assets provisioning norms for UCBs?

The provisioning norms for standard assets applicable to all categories of UCBs (i.e. Tier I, Tier 2, Tier 3 and Tier 4 UCBs), irrespective of their Tier under the revised framework are as under –

Category of Standard Asset Rate of Provisioning for all UCBs
Direct advances to agriculture and SME sectors 0.25%
Commercial real estate (CRE) sector 1.00%
Commercial real estate - residential housing (CRE-RH) sector 0.75%
All other advances 0.40%

The erstwhile Tier I UCBs, which are currently maintaining standard asset provision of 0.25% on ‘all other loans and advances not included above’, are permitted to achieve the provisioning requirement of 0.40% on such advances in a staggered manner by March 31, 2025. Thus, provision on all such standard loans and advances outstanding as on March 31, 2023 shall be increased to 0.30% by March 31, 2024, to 0.35% by September 30, 2024 and to 0.40% by March 31, 2025.


References

Reserve Bank of India. (2009, May 06). 'UCBs - Extension of Area of Operation - Liberalisation'. Retrieved from https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=4970&Mode=0

Reserve Bank of India. (2022, April 01). 'Master Circular - Income Recognition, Asset Classification, Provisioning and Other Related Matters - UCBs'. Retrieved from https://rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12283

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. (2023, April 24). 'Provisioning for standard assets by primary (Urban) co-operative banks – revised norms under four-tiered regulatory framework'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12491&Mode=0


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