Four-tiered Regulatory Framework for Urban Co-operative Banks (UCBs)

About:

• According to RBI, such framework is needed to balance the spirit of mutuality and co-operation more prevalent in banks of smaller sizes and those with limited area of operation vis-a-vis the growth ambitions of the large-sized UCBs and undertake more complex business activities.
• Based on size of deposits of the UCBs, the four-tiered regulatory framework will come into force with immediate effect.
• The extant regulatory framework classifies UCBs into two tiers – Tier I and Tier II.
  • The RBI has categorised all unit UCBs and salary earners' UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore in Tier 1.
  • In Tier 2, it has placed UCBs with deposits more than ₹100 crore and up to ₹1,000 crore.
  • Tier 3 will cover banks with deposits more than ₹1,000 crore and up to ₹10,000 crore.
  • UCBs with deposits more than ₹10,000 crore have been categorised in Tier 4.
• Net worth and capital adequacy:
  • RBI also has come out with norms pertaining to the net worth and capital adequacy of these banks.
  • Tier 1 UCBs operating in a single district should have minimum net worth of ₹2 crore.
  • For all other UCBs (in Tier 1, 2 and 3) tiers), the minimum net worth should be ₹5 crore.
  • The UCBs, which currently do not meet the revised minimum net worth requirement, will have to achieve the minimum net worth of ₹2 crore or ₹5 crore (as applicable) in a phased manner.
• Minimum capital to risk weighted assets ratio:
  • The central bank also prescribed minimum capital to risk weighted assets ratio requirement for UCBs.
  • Tier 1 UCBs have to maintain a minimum capital to risk weighted assets ratio of 9 per cent of Risk Weighted Assets (RWAs) on an ongoing basis.
  • Tier 2 to 4 UCBs have to maintain a minimum capital to risk weighted assets of 12 per cent of RWAs on an ongoing basis.