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Inclusion of UCBs in the Second Schedule to the RBI Act, 1934

Reserve Bank of India (RBI) has revised the eligibility norms for inclusion of Urban Co-operative Banks (UCBs) in the Second Schedule to the RBI Act, 1934.

What is the basis for revision in eligibility norms?

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 had revised the regulatory framework for Urban Co-operative Banks (UCBs).

In December 2022, RBI had revised the norms for classification of UCBs as Financially Sound and Well Managed (FSWM).

RBI has now revised the eligibility norms for inclusion of UCBs in the Second Schedule to the RBI Act, 1934.

Which banks are eligible for inclusion in the Second Schedule to the RBI Act, 1934?

As per section 42(6)(a) of the RBI Act, 1934, RBI shall direct the inclusion in the Second Schedule of any bank which – 

Section Provision
Section 42(6)(a)(i) Has a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh.
Section 42(6)(a)(ii) Satisfies RBI that its affairs are not detrimental to the interest of its depositors.
Section 42(6)(a)(iii) Is a State co-operative bank or company as defined in section 3 of Companies Act, 1956 or an institution notified by the Central Government or corporation / company incorporated by or under any law in force outside India.

What are the revised eligibility norms for inclusion of UCBs in the Second Schedule to the RBI Act, 1934?

UCBs satisfying the following criteria shall be considered for inclusion in the Second Schedule to the RBI Act, 1934 and shall be eligible financial institutions for the purpose of section 42(6)(a)(iii) of the RBI Act, 1934  –

  • Licensed Tier 3 and Tier 4 UCBs.
  • Fulfils the criteria for Financially Sound and Well Managed UCBs.
  • Maintains minimum deposits required for categorisation as a Tier 3 UCB (i.e. deposits more than ₹1000 crore and up to ₹10,000 crore) for 2 consecutive years.
  • Maintains CRAR of at least 3% more than the minimum CRAR requirement applicable to the UCB (i.e. applicable CRAR + 3%)
  • Does not have major regulatory and supervisory concerns.


References

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act

Reserve Bank of India. (2024, January 17). 'Second Schedule to the Reserve Bank of India Act, 1934 – Norms for inclusion'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12601&Mode=0


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