RBI adopts four-tiered regulatory for Urban Cooperative Banks

The Reserve Bank of India has issued a revised regulatory framework for Urban Cooperative Banks as per the recommendations of the expert committee formed under the Chairmanship of RBI’s former Deputy Governor Mr. N S Vishwanathan.

Accordingly, RBI has decided to adopt a simple four-tiered regulatory framework based on the size of deposits of the banks and their area of operations. RBI has said that this is likely to strengthen the financial soundness of existing UCBs. Specifically, a minimum net worth of two crore rupees for Tier 1 UCBs operating in a single district and five crore rupees for all other UCBs has been stipulated.

In order to boost growth opportunities in the sector, RBI has decided to introduce an automatic route for branch expansion for UCBs, allowing them to open



new branches as per the revised Financially Sound and Well Managed criteria. With respect to housing loans, RBI has decided to assign the risk weights on the basis of Loan to Value Ratio alone which would result in capital savings.

RBI has said that the capital requirements for UCBs have been suitably recalibrated to make the sector more robust and to support its orderly growth. The apex bank has added that a suitable glide path has also been provided in the framework for a non-disruptive transformation of the sector.

RBI has further stated the measures for strengthening the banking sector are also being supplemented by offering more operational flexibility to strong UCBs to serve their desired role in credit intermediation.