• Fri. Dec 8th, 2023

Housing Finance Bank

Housing Finance Bank, The Real Thing

Rbi news: RBI to adopt four tiered regulatory framework for Urban Co-operative Banks

The Reserve Bank will adopt a four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing Urban co-operative Banks (UCBs).

The banking regulator has prescribed a minimum net worth of Rs 2 crore for Tier-I UCBs operating in single district and Rs 5 crore for all other UCBs (of all tiers). ” This is expected to strengthen the financial resilience of the banks and enhance their ability to fund their growth.” RBI said in its release.

As of March 2021, most UCBs have already complies with the requirement as per the data submitted to RBI by the USBs. Those who do not meet the requirement, will be provided a glide path of five years with intermediate milestones to facilitate smooth transition to revised norms, RBI said.

Tier 1 – UCBs are all unit UCBs and salary earner’s UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs 100 crore; Tier 2 – UCBs would be those with deposits more than Rs100 crore and up to Rs1000 crore; Tier 3 – UCBs would be 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. The new regularory presciptions are based on the recommendation of the expert committee on Urban Co-operative Banks appointed in February 2021 under the Chairmanship of former deputy governor N. S. Vishwanathan.

In order to boost growth opportunities in the sector, RBI has decided to introduce automatic route for branch expansion to UCBs which meet the revised Financially Sound and Well Managed (FSWM) criteria and permit them to open new branches up to 10% of the number of branches as at the end of the previous financial year.

In respect of housing loans, it has been decided to assign the risk weights on the basis of Loan to Value (LTV) Ratio alone which would result in capital savings. This will be applicable to all Tiers of UCBs, RBI said.

The minimum CRAR requirement for Tier 1 banks is retained at the present prescription of 9% under current capital adequacy framework based on Basel I. For Tier 2, Tier 3 and Tier 4 UCBs, while retaining the current capital adequacy framework, it has been decided to revise the minimum capital to risk weighted assets ratio (CRAR) to 12% so as to strengthen their capital structure.

” The increase in CRAR requirement is reasonable as these UCBs do not have full capital charge for market risk and currently maintain no capital charge for operational risk” RBI said. As per the data reported by the banks as on March 31, 2021, most of UCBs have CRAR more than 12% (1274 banks out of 1534)2. Further, the banks that do not meet the revised CRAR will be provided with a glide path of three years for achieving the same in a phased manner. Accordingly, these banks will have to achieve a

CRAR of 10% by the financial year ended March 31, 2024, 11% by March 31,2025; and 12% by March 31, 2026.


By admin

Leave a Reply

Your email address will not be published. Required fields are marked *