RBI Updates- Important Recommendations made by High Power Committee on UCBs

    RBI Updates- Important Recommendations made by High Power Committee on UCB
    RBI Updates- Important Recommendations made by High Power Committee on UCB:
    Reserve Bank India has announced the constitution of High Powered Committee (HPC) on Urban Co-operative Banks (UCBs) under the Chairmanship of Shir R. Gandhi, Deputy Governor, Reserve Bank of India to examine and recommend permissible business lines and appropriate size, and examine the issues with regard to conversion of UCBs into commercial banks besides determining whether the time is opportune to issue new licenses to UCBs as recommended by the Expert Committee on Licensing of New UCBs (Malegam Committee). This was pursuant to the recommendation made by the Standing Advisory Committee (SAC) on UCBs in its meeting held on October 20, 2014.

    ·        As of March 31, 2015 there were 1, 579 UCBs in the country.
    ·        As at March – end 2015, only Saraswat Co-operative Bank had total business (deposits plus advances) of more than Rs. 20,000 crore. Cosmos co-operative Bank, the second-largest UCB in the country, had a total business of Rs. 19,089 crore.

    Important recommendations made by High Powered Committee on UCBs:

    1). Business Size and Conversion of Multi- State UCBs into joint stock bank: Abusiness size of Rs. 20,000 crore may be the threshold limit beyond which a UCB may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory. However, the types of businesses to be undertaken by those choosing not to convert may remain within the limits of plain vanilla products and services and hence, growth will be at a much slower pace. Their expansion in terms of branches, area of operations and business lines may thus be carefully calibrated.

    2). Conversion of UCBs into Small Finance Banks (SFBs):Smaller UCBs with business size of less than Rs. 20,000 crore willing to convert to SFBs can apply to the Reserve Bank for conversion provided they fulfill all the eligibility criteria and selection processes prescribed by the Reserve Bank and further provided that the licensing window for SFBs is open.

    3). Issue of fresh licenses: Licenses may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of 5 years which satisfy the regulatory prescriptions set by the Reserve Bank as licensing conditions. For providing banking access in unbanked areas, the Reserve Bank may put in place an appropriate set of incentives for existing banks to open branches there.

    4). Board of management (BoM) in addition to Board of Directors (BoDs):Putting in place a BoM as suggested by the Malegam Committee has be one of the mandatory licensing conditions for licensing of new UCBs and expansion of existing ones.

    5). Entry Point Norms: The new Entry Point Norms (EPNs) may be as under:
    ·        To operate as a Multi- State Urban Co-operative Bank –Rs. 100 crore
    ·        To operate beyond two districts and as a State level UCB- Rs. 50 crore
    ·        To operate as District level UCB (upto 2 districts)- Rs. 25 crore
    ·        In case of conversion of co-operative credit societies in unbanked areas and in the north-east, suitable relaxation may be made by the Reserve Bank.

    6). Depositor as voting members:The depositors ought to have a say on the Boards of UCBs. For this, a majority of the board seats may be reserved for depositors by making suitable provisions in the bye- laws.

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