Reserve Bank of India implements 4 tiered regulatory norms for UCB

The Reserve Bank of India (RBI) has announced a four-tiered regulatory framework for categorisation of Urban Co-operative Banks (UCBs). Besides, the central bank has come out with norms pertaining to the net worth and capital adequacy of these banks.

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The Reserve Bank of India had constituted the Expert Committee on Urban Co-operative Banks, under the Chairmanship of Shri N. S. Vishwanathan, former Deputy Governor, Reserve Bank to examine the issues in urban cooperative banking sector and to review regulatory/ supervisory approach for strengthening the sector. Based on the recommendations of the Expert Committee, RBI had released the Revised Regulatory Framework for Urban Co-operative Banks (UCBs) on July 19, 2022. The four-tiered regulatory framework, based on size of deposits of the UCBs, will come into force with immediate effect.

RBI has now categorized Urban Co-Operative Banks in India into four tier depending upon the deposit with the bank:

• Tier 1: UCB are those banks having deposits up to Rs 100 crore operating in a single district or having branches in contiguous districts.
• Tier 2: UCBs with deposits more than Rs.100 crore and up to Rs.1000 crore.
• Tier 3 – UCBs with deposits more than Rs.1000 crore and up to Rs.10, 000 crore.
• Tier 4 – UCBs with deposits more than Rs.10, 000 crore.

Minimum Net worth Requirement of the banks

• The minimum net worth (have a minimum capital and reserves) requirement for the Tier 1 UCBs operating in single districts shall be Rs 2 crore.

For other UCB it shall be Rs 5 crore.

• Those UCBs which do not meet the requirement, have to achieve the minimum net worth of ₹2 crore or ₹5 crore in a phased manner in five years. The banks will have to achieve the 50% minimum net worth requirement in three years and the remaining 50% in next two years.

What is Urban Cooperative Banks?

Urban Cooperative Banks (UCBs) are registered as cooperative societies under the provisions of, either the State Cooperative Societies Act of the State concerned under the provisions of the or the Multi State Cooperative Societies Act, 2002. There is a duality of control over the UCB. It is regulated by the Registrar of Cooperatives and also by the RBI. UCB registered under the State Cooperative Societies Act are regulated and supervised by the Registrar of Cooperative Societies (RCS) of the State concerned. UCB which are set up under the Multi State Cooperative Societies Act, 2002 are regulated by the Central Registrar of Cooperative Societies (CRCS).

Regulation of banking function

The Banking Regulation Act 1949 was made applicable on these banks from 1 March 1966. The Reserve Bank regulates and supervises the banking functions of UCBs under the provisions of Banking Regulation Act, 1949.

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