RBI’s ‘Regulations at a Glance’: Key Insights for Cooperative Banks

The Reserve Bank of India (RBI) has released the “Regulations at a Glance” handbook, compiled by the Department of Regulation (DoR), to offer a broad overview of key regulatory guidelines applicable to various banking entities, including cooperative banks. The handbook summarizes major regulations in a tabular format for easy reference but does not replace official circulars, Master Circulars, or Master Directions.

This article highlights essential regulatory provisions applicable to cooperative banks as outlined in the handbook.

Key Regulations for Cooperative Banks

1. Licensing of New Institutions

Urban Cooperative Banks (UCBs)

• Minimum paid-up capital/net worth: ₹12.5 lakh – ₹4 crore (depending on location and population size).
• Note: RBI has stopped accepting fresh applications for new UCBs since 2004.

Rural Cooperative Banks (StCBs & CCBs)

• Declared as State Cooperative Banks (StCBs) or Central Cooperative Banks (CCBs) by the state government.
• RBI grants licenses based on NABARD’s recommendations and internal assessment.

Promoters’ Criteria

• Evaluated on educational qualifications, professional competence, financial strength, capital mobilization ability, and membership eligibility.

2. Branch Licensing

Urban Cooperative Banks (UCBs)

• Automatic Route: UCBs classified as Financially Sound and Well Managed (FSWM) can open branches up to 10% of existing branches (min. 1, max. 5).
• Approval Route: FSWM UCBs must submit an Annual Business Plan (ABP) to RBI’s regional office by December 15.

State Cooperative Banks (StCBs)

• Require NABARD & RBI approval with conditions like:
• CRAR ≥ 9%, NNPA ≤ 5%, compliance record, and no penalties in last two years.

District Central Cooperative Banks (DCCBs)

Additional requirements,

• Operational for at least 3 years and net profit in last 2 years.
• Not under RBI restrictions.

3. Governance Framework

Regulated by

• State/Central Cooperative Society laws.
• Banking Regulation (BR) Act, 1949 (since 2020).

Key Provisions

• UCBs must form an Audit Committee of the Board.
• Fit and proper criteria for directors, MD/CEO, and WTD.
• Maximum continuous tenure limits for directors.
• Larger UCBs must appoint an independent Chief Risk Officer (CRO).
• NABARD issues governance guidelines for rural cooperative banks.

4. Credit Risk Management

Urban Cooperative Banks (UCBs)

• Loan against shares, bonds, and debentures: Max ₹10 lakh, LTV 50%.

Rural Cooperative Banks

• Loan against shares, bonds, and debentures: Max ₹5 lakh, LTV 50%.

Securitization of Standard Assets

• Allowed for SCBs, AIFIs, and NBFCs.
• Not allowed for RRBs and Cooperative Banks.

5. Interest Rate Framework & Deposit Pricing

General Principles

• Uniform interest rates across all branches/customers.
• No discrimination in deposit rates for similar amounts and dates.
• No negotiation of interest rates with individual depositors.
• NRE/NRO deposit rates cannot exceed domestic deposit rates.

6. Mergers & Amalgamations

Key Provisions

• Governed by the Banking Regulation (BR) Act, 1949.
• RBI has discretionary power under Section 44A to approve voluntary amalgamations.
• Private Bank Mergers: Must be approved by shareholders (2/3rd majority) before submission to RBI.
• UCB Mergers: Considered only if depositors’ funds are fully protected.

7. Resolution of Banking Companies & Cooperative Banks

Compulsory Amalgamation/Reconstruction

• RBI can apply to the government for restructuring under Section 45 of the BR Act.
• Section 45(4) (2020 Amendment): RBI can initiate amalgamations during a moratorium or at any other time.

Powers of RBI

• Section 10B: Remove Chairman/MD of a banking company.
• Section 36ACA: Supersede the board of banking companies.
• Section 35A: Issue directives for proper banking management.
• Section 22(4): RBI can cancel banking licenses (appeals go to the Central Government within 30 days).

Post-License Cancellation

• Banking companies: High Court appoints liquidator.
• Uni-state cooperative banks: Registrar of Cooperative Societies appoints liquidator.
• Multi-state cooperative banks: Central Registrar appoints liquidator.