RBI Introduces New Regulatory Framework For Urban Co-operative Banks

On December 1, The Reserve Bank of India (RBI) announced a four-tier regulatory framework for the classification of urban cooperative banks (UCBs).

Aside from that, the RBI has established standards for these banks’ net worth and solvency, according to the news agency PTI.
UCB’s four-tier regulatory framework based on deposit size takes effect immediately. In terms of details, the current regulatory framework classifies UCBs into two tiers: Tier I and Tier II.

The RBI noted in its circular that the heterogeneity of the cooperative sector necessitated the addition of a multi-level regulatory framework to balance the spirit of reciprocity and cooperation more prevalent in small and limited banks. compared to UCB’s corporate growth goals and is engaged in a more complex business.

“It has been decided to introduce a four-tier regulatory framework in place of the existing two-tier UCB classification framework,” it said.
The classifier, which aims to strengthen the financial stability of UCB, can be used in differentiated regulatory provisions.
All single-tier UCBs and salaried UCBs (regardless of deposit size) and all other UCBs with deposits up to Rs. 1 lakh were classified by the RBI. 

Tier 3 covers banks with deposits above 1,000 crores and up to 10,000 crore UCBs with deposits of more than $10,000 are classified in the fourth tier, the circular said.
“If a UCB moves to a higher tier due to an increase in deposits every year, it can get a maximum extension of three years to meet the higher regulatory requirements…” the RBI said. 

In another circular, The RBI listed the net worth and solvency requirements of UCBs. Tier 1 UCBs operating in a single region must have at least Rs 2 lakh in net assets. All other UCBs (Tier 1, 2, and 3) should have a net worth of at least Rs 5 crore. The UCBs that currently do not meet the revised minimum net worth requirement will have to achieve a net worth of at least 2 crores or 5 crores (as applicable) in a phased manner, the RBI said. The central bank has also prescribed minimum capital and risk-weighted assets for UCBs.
Tier 1 UCBs must continuously maintain a minimum capital-to-risk-weighted asset ratio of 9 percent of risk-weighted assets (RWA).
Tier UCBs must continuously maintain a minimum capitalization of risk-weighted assets of 12 percent of their risk-weighted assets, the circular said.

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