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Urban Cooperative Banks 4-tier regulatory structure adopted by RBI

In order to improve the financial soundness of Urban Co-operative Banks (UCBs), the RBI has decided to create a straightforward four-tiered regulatory framework. A panel of experts led by former RBI deputy governor N S Vishwanathan had presented a number of suggestions for improving UCBs. In addition to other recommendations, the committee had suggested a four-tiered regulatory structure depending on the size of the banks’ deposits and the regions in which they operated.

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For important factors such net worth, the Capital to Risk-weighted Assets Ratio (CRAR), branch expansion, and exposure limitations, a differentiated regulatory approach was primarily advised. A crucial component of the recommendations was belonging to an umbrella organisation. The RBI has agreed to a number of committee recommendations.


  • For Tier 1 UCBs functioning in a single district, a minimum net value of Rs 2 crore has been mandated, and Rs 5 crore for all other UCBs (of all tiers).
  • According to the RBI, this will help the banks become more financially resilient and improve their capacity to finance business expansion.
  • According to information provided by UCBs as of March 31, 2021, the majority of banks have already complied with the requirement.
  • To enable a smooth transition to the revised norms, the UCBs that do not meet the requirement will be given a glide path of five years with interim milestones.
  • The minimum CRAR requirement for Tier 1 banks is maintained at the current prescription of 9% under the current capital adequacy framework based on Basel I, according to the RBI.
  • While maintaining the current capital adequacy framework, it has been agreed to increase the minimum CRAR for Tier 2, Tier 3, and Tier 4 UCBs to 12 percent in order to enhance their capital structure, according to the central bank.
  • In order to increase growth chances in the sector, the RBI also decided to create an automatic path for branch expansion for UCBs that meet specific requirements.
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