A four-tier regulatory framework based on the size of deposits of UCBs will come into force with immediate effect.
The current regulatory framework classifies UCBs into two tiers – Tier I and Tier II.
In a circular, the RBI said that in view of the diversity in the cooperative sector, there is a need for a one-tier regulatory framework. Such a framework is needed to balance the growth ambitions of larger UCBs and the spirit of reciprocity and co-operation more prevalent in smaller-sized banks and banks with limited area of ​​operations as compared to undertaking more complex business activities.
“…it has been decided to move to a four-tier regulatory framework for classification of UCBs as against the existing two-tier framework.”
Going forward, the classification may be used for differentiated regulatory prescription aimed at strengthening the financial soundness of UCBs.
RBI has classified all unit UCBs and salaried UCBs (irrespective of deposit size) with deposits up to Rs 100 crore in Tier 1.
In Tier 2, it placed UCBs with deposits above Rs 100 crore and up to Rs 1,000 crore. Tier 3 will include banks with deposits above Rs 1,000 crore and up to Rs 10,000 crore.
UCBs with deposits above Rs 10,000 crore are classified in Tier 4.
“If a UCB moves to a higher level due to increase in deposits in any year, it may be provided a glide path of up to a maximum of three years to comply with higher regulatory requirements…” RBI said.
In another circular, RBI has listed the net worth and capital adequacy requirements of UCBs.
Tier 1 Urban Cooperative Banks operating in the same district should have a minimum net worth of Rs 2 crore. For all other UCBs (Tier 1, 2 and 3) tiers, the minimum net worth should be Rs 5 crore.
UCBs which currently do not meet the revised minimum net worth requirement will be required to achieve a minimum net worth of Rs 2 crore or Rs 5 crore (as applicable) in a phased manner.
The central bank has also prescribed minimum capital to risk weighted assets ratio requirement for UCBs.
Tier 1 UCBs are required to maintain the minimum capital to risk weighted assets ratio as hitherto at 9 per cent of risk weighted assets (RWA). Tier 2 to 4 UCBs will have to maintain a minimum capital for risk weighted assets of 12 per cent of RWA on an ongoing basis. PTI NKD Ram