On July 19, 2022, the Reserve Bank of India (RBI) prescribed the following four-tier regulatory structure with differentiated regulatory prescriptions for urban cooperative banks (UCBs) to strengthen their financial resilience, and to enhance their ability to fund their growth:
- Tier-I: All unit UCBs and salary earners’ UCBs, irrespective of deposit size, and all other UCBs with deposits of up to Rs100 crore
- Tier-II: UCBs with deposits of more than Rs 100 crore and up to Rs 1,000 crore
- Tier III: UCBs with deposits of over Rs 1,000 crore and up to Rs 10,000 crore
- Tier-IV: UCBs with deposits of over Rs 10,000 crore
The differentiated regulatory approach was mainly recommended for key parameters such as net worth, Capital to Risk-weighted Assets Ratio (CRAR), branch expansion and exposure limits.
Net Worth:
RBI has stipulated a minimum net worth of Rs 2 crore for Tier-I UCBs operating in a single district and Rs 5 crore for all other UCBs of all tiers.
Capital-to-Risk Weighted Assets Ratio (CRAR)/Capital Adequacy Ratio:
i.RBI retained the minimum CRAR requirement for Tier-I UCBs at the present level of 9%.
ii.For UCBs of all other tiers, RBI revised the minimum capital adequacy ratio to 12% to strengthen their capital structure.
iii.1,274 UCBs of the total 1,534, have a capital adequacy ratio of over 12% as on March 1, 2021.
iv.UCBs that do not meet the revised capital adequacy requirements can do it in tranches over three years. Accordingly, these banks will have to achieve a CRAR of 10% by the financial year ended March 31, 2024, 11% by March 31, 2025; and 12% by March 31, 2026.
Formation of Working Group:
In order to examine the issues concerning recommendation for capital augmentation under the provisions of Section 12 of the Banking Regulation Act, 1949, a Working Group comprising the representatives from RBI, Securities and Exchange Board of India (SEBI), and Ministry of Co-operation, Government of India has been constituted.
Background:
In February 2021, the RBI constituted the committee headed by former Deputy Governor N S Vishwanathan to examine issues in the urban cooperative banking sector, provide a medium-term road map and suggest measures for faster resolution of UCBs, among others. After the committee submitted the report, the RBI invited comments in August 2021.
- Now on the basis of the recommendations of committee, this four-tier regulatory structure has been prescribed by RBI.
RBI restricts 3 cooperative banks from conducting Banking Activity due to Poor Liquidity Position
The RBI in exercise of its powers conferred under sub section (1) of Section 35 A of the Banking Regulation Act, 1949, read with Section 56 of the Banking Regulation Act, 1949, imposed restrictions on the following three cooperative banks due to their poor liquidity position:
i.Nashik Zilla Girna Sahakari Bank Limited, Nashik (Maharashtra)
ii.Sri Mallikarjuna Pattana Sahakari Bank Niyamita, Maski (Karnataka)
iii.Raigad Sahakari Bank Limited, Mumbai (Maharashtra)
The restrictions will remain in force for a period of six months w.e.f. July 18, 2022.
What are the restrictions?
i.The above mentioned banks can not grant or renew any loans and advances without prior approval of RBI in writing.
ii.The cannot make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets
iii.No amount from the total balance across all savings bank or current accounts or any other account of a depositor is allowed to be withdrawn for above mentioned banks i & ii, but are allowed to set off loans against deposits, subject to the conditions.
- For bank iii i.e. Raigad Sahakari Bank Limited, a sum not exceeding Rs 15,000 of the total balance across all savings bank or current accounts or any other account of a depositor is allowed to be withdrawn.
Failing to comply with the RBI directions can result in cancellation of banking license by RBI.
Recent Related News:
i.On April 7, 2022, the Reserve Bank of India (RBI) imposed several restrictions on Bengaluru (Karnataka)-based Bank namely, ‘Shushruti Souharda Sahakara Bank Niyamita’ for a period of six months w.e.f. April 7, 2022, due to decline in the lender’s financial position.
ii.The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 17.63 lakh on Manappuram Finance Limited for non-compliance with certain provisions of the Master Direction on Issuance and Operation of Prepaid Payment Instruments (PPIs) dated October 11, 2017 (updated as on February 28, 2020) and the Master Direction – Know Your Customer (KYC) Direction dated February 25, 2016 (as updated on April 20,
2020).
About Reserve Bank of India (RBI):
i.The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
