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R Gandhi panel recommended conversion of UCBs into Regular Banks

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To strengthen the Urban Cooperative Bank (UCB) structure the Reserve Bank of India’s (RBI) nine-member High Powered internal Committee on Urban UCBs headed by RBI Deputy Governor R Gandhi in its report has recommended conversion of UCBs with business size of 20000 crore rupees or more into regular banks. 

Key Recommendations:

  • A business size of Rs20,000 crore or more may be the threshold limit beyond which a UCB may be expected to convert to a commercial bank. However, the conversion isn’t mandatory.
  • Smaller UCBs with business size of less than Rs20000 crore rupees willing to convert to Small Finance Banks (SFBs) can apply for conversion provided they fulfill all the eligibility criteria and selection processes prescribed by the RBI.
  • Licenses may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of 5 years which satisfy the regulatory prescriptions set by the RBI.
  • Setting up a Board of Management (BoM) as suggested by the Malegam Committee has to be one of the mandatory licensing conditions for licensing of new UCBs and expansion of existing ones.
  • Stiff entry-point norms for new UCBs – to operate as a multi-state UCB, the minimum capital requirement would be Rs 100 crore, to operate beyond two districts and as a state-level UCB, the capital threshold is Rs 50 crore and a capital of Rs 25 crore if the UCB is at the district level.
  • As recommended, the depositors must have a say on the Boards. For this, a majority of the board seats may be reserved for depositors by making suitable provisions in the bye-laws.

As per the official report, this transition is required due to the changing financial landscape in the country and also for giving an opportunity to well-run UCBs to play a major role going forward. But this requires requisite amendments in the provisions of the Cooperative Societies Acts of all states which is a long process. That’s why the Committee recommended that only UCBs which are registered under the Multi-state Co-operative Societies Act, 2002 may be considered for conversion to commercial banks.