RBI panel suggests conversion of UCBs into commercial banks

A high-level committee set up by the Reserve Bank of India (RBI) has proposed conversion of multi-state urban cooperative banks (UCBs) with business size of Rs20,000 crore and above into joint stock banks operating on commercial lines like other scheduled commercial banks.

UCBs of smaller business size, of say below Rs20,000, could get themselves converted into small finance banks, the RBI panel said.

''A business size of Rs20,000 crore or more may be the threshold limit beyond which an UCB may be expected to convert itself into a commercial bank,'' RBI said in a release.

While the conversion need not be de jure compulsory, the panel said, 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.

Smaller UCBs with business size of less than Rs20,000 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.

Licences may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of five years, which satisfy the regulatory prescriptions set by the Reserve Bank as licensing conditions.

For providing banking access in unbanked areas, the Reserve Bank said, it may put in place an appropriate set of incentives for existing banks to open branches there.

One of the mandatory licensing conditions is the setting up of a board of management (BoM) in addition to the board of directors (BoDs), as suggested by the Malegam Committee, for licensing of new UCBs and expansion of existing ones.

The committee has proposed new entry point norms (EPNs) as under:

  • To operate as a multi-state urban co-operative bank - Rs100 crore
  • To operate beyond two districts and as a state level UCB - Rs50 crore
  • To operate as district level UCB (up to 2 districts) - Rs25 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.

RBI said 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.

It may be recalled that on 30 January 2015, the Reserve Bank had announced the constitution of a high powered committee (HPC) under the chairmanship of R Gandhi, deputy governor of the 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.

It was lo tasked with 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 20 October 2014.