RBI appointed panel suggests 4-tier structure for Urban Co-operative Banks

The committee appointed by the Reserve Bank proposed the four-tier structure of the Urban Cooperative Bank (UCB) based on deposits, and established different capital adequacy ratios and regulatory standards for them depending on their size. The RBI committee stated that UCB can be divided into four categories: Tier 1, with deposits up to Rs 10 billion; Level 2 deposits between Rs 10 billion, Level 3 deposits between Rs 10 billion and Rs 10,000, and Level 4 deposits in excess of Rs 10,000 crore. Recommends that its minimum ratio of capital to risk-weighted assets (CRAR) can range between 9% and 15%, and for Tier4 UCB, it is the standard established by Basel III. The RBI group also set separate maximum limits for home loans, gold jewelry loans, and unsecured loans for different types of UCBs.
In February, the Reserve Bank of India established the Youth Cooperative Banking Expert Committee (of the city), chaired by the former Deputy Governor of the Reserve Bank of India, NS Vishwanathan.
Regarding the UCB merger, the team in the report stated that RBI should remain largely neutral on voluntary mergers unless recommended as regulatory action.
“However, the Reserve Bank of India, after giving them the opportunity to propose a voluntary solution, should not hesitate to use a mandatory merger approach to resolve UCBs that do not meet prudential requirements,” he said. The minimum capital requirement provides UCB with integrated scale.
Regarding the proposal to resolve UCB, the committee stated that under the Banking Regulation Act (BR), RBI can prepare a mandatory merger or reconstruction plan for UCB, as a banking company.
This method can be used when the required voluntary action does not arrive or does not lead to the expected result. The group further stated that the Regulatory Action Framework (SAF) should follow a dual indicator approach, and should only consider the quality of assets and capital as measured by NNPA and CRAR, rather than the current triple indicator. The goal of SAF should be to find a temporary remedy for the financial pressure of the bank. If UCB is in a more stringent SAF stage for a long time, it may adversely affect its operations and may further erode its financial situation, he said.
also proposes to amend the BR Law to authorize RBI to declare that certain securities issued by UCB fall within the scope of the Securities Contract Management Law to facilitate its listing and trading on recognized stock exchanges.
Prior to this, RBI may consider allowing Tier 3 and Tier 4 banks with the necessary technology and means to issue high-quality stocks to people living in their operating areas under certain conditions, the team said.
Due to structural problems such as “capital” and loopholes in the legal framework, the supervision is insufficient, and the supervisory policies of cooperative banks restrict their business operations. To a certain extent, this is one of the reasons that affect their growth.
With the enactment of the Banking Supervision (Amendment) Act in 2020, the statutory gap has been largely resolved.
According to the report, the committee noted that the UCB department has been under pressure for a long time. Considers that given the importance of the industry in promoting financial inclusion and taking into account its large customer base, “the industry’s regulatory strategy should be comprehensively reviewed to improve its resilience and provide benefits for sustainable growth and stable in the medium term. Environment.” In the committee’s view, while structural factors arising from UCB’s cooperative nature may still pose some challenges, the amendments to the BR Act have largely resolved gaps in the legislative framework. The expert group suggested that recent amendments to the BR Act require legislative authorization to supplement the listing of certain securities issued by UCB.
In terms of home loans, the expert group stated that the maximum home loan limit can be specified as a percentage of Tier 1 capital, subject to the UCB Tier 1 currency limit specified by the RBI (but higher than the current limit) and to the one approved by the respective board of directors.The upper limit of Tier 1 capital is 2 UCB. For Tier 2 UCBs, the risk weight for home loans can be specified according to the relationship between loan size and p-value. loan (LTV), which is consistent with SCB. Expert group
also made recommendations on gold jewelry loans with bullet repayment options.
He also stated that the Umbrella Organization (UO) is expected to play a key role in strengthening the sector. For this, it must be a financially strong organization with sufficient capital and a viable business plan. The group stated that the minimum capital for UO should be Rs 3 billion, CRAR and a regulatory framework similar to that of the larger NBFC sector.
In addition, in the long run, UO can assume the role of a self-regulatory organization (SRO) for the smaller UCB. The report stated that the industry’s poor performance has two major constraints.
The first set of factors is internal to the department. Many UCBs are small in scale and do not have the financial or human resource capabilities and / or the potential inclination to provide financial services with technical support.
The second set of constraints are external to the bank. This is due to the fact that they have to operate under a fairly strict regulatory environment. It was suggested that the new UCB license be opened immediately. There are already more than 1,500 UCBs. The committee recommended allowing the existing UCB to expand its presence. The number of UCB borrowers is estimated to be 6.7 million.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close