RBI panel suggests 4-tier structure for urban co-op banks

Mumbai: A committee set up by the Reserve Bank of India to look into the functioning of urban cooperative banks (UCB) has suggested a four-tiered structure to regulate them based on their size of deposits and has prescribed different capital adequacy and regulatory norms for them.

The committee has also suggested setting up an umbrella organisation with a minimum capital of Rs 300 crore to oversee UCBs, besides suggesting that the entities be allowed to open more branches if they meet all regulatory requirements.

UCBs have estimated 67 lakh borrowers currently.

The RBI committee said that the UCBs could be split into four categories—Tier-1 with deposits up to Rs 100 crore; Tier-2 with deposits between Rs 100 crore and Rs 1,000 crore, Tier-3 with deposits between Rs 1,000 crore and Rs 10,000 crore and Tier-4 with deposits of over Rs 10,000 crore.

The committee has suggested that the minimum capital to risk-weighted assets ratio (CRAR) for them could vary from 9 per cent to 15 per cent and for Tier-4 UCBs the Basel III prescribed norms would apply.

 The RBI panel has also prescribed separate ceilings for home loans, loan against gold ornaments and unsecured loans for different categories of UCBs.

The committee advocated that the smaller banks, which are more rooted in co-operative principles, should be allowed to acquire scale through the network of the umbrella organisation, while the larger ones should have scale on a stand-alone basis. The umbrella organisation, structured as an NBFC, will be able to raise capital from the market and also on-lend it to member UCBs. The umbrella organisation (UO), at a later stage, can consider converting into a universal bank owned by member banks. Once the UO stabilises, licensing of new UCBs could be considered.

In February, the RBI had constituted the expert committee on primary (urban) co-operative banks under the chairmanship of N. S. Vishwanathan, former RBI deputy governor.

On consolidation of UCBs, the panel said the RBI should be largely neutral to voluntary on consolidation except where it is suggested as a supervisory action. The powers to order compulsory amalgamation should be used as the backstop.


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