RBI Announces Four-Tiered Regulatory Framework For UCBs The four-tiered regulatory framework, based on the size of deposits of UCBs, will come into force with immediate effect

The Reserve Bank of India (RBI), on Thursday, has announced a four-tiered regulatory framework for categorisation of urban co-operative Banks (UCBs), according to a PTI report. The four-tiered regulatory framework, based on the size of deposits of UCBs, will come into force with immediate effect.

In a circular, as per the report, the RBI said given the heterogeneity in the cooperative sector, a tiered regulatory framework is required to balance the spirit of mutuality and co-operation more prevalent in banks of smaller sizes and those with limited area of operation vis-a-vis the growth ambitions of the large-sized UCBs and undertake more complex business activities.

The extant regulatory framework classifies UCBs into two tiers -- Tier I and Tier II, where the categorisation may be used for differentiated regulatory prescriptions aimed at strengthening the financial soundness of the UCBs.

As per reports, the RBI has categorised all unit UCBs and salary earners' UCBs (irrespective of deposit size), and all other UCBs having deposits up to INR 100 crore in Tier 1. In Tier 2, it has placed UCBs with deposits more than INR 100 crore and up to INR 1,000 crore. Tier 3 will cover banks with deposits more than INR 1,000 crore and up to INR 10,000 crore.

"If a UCB transits to a higher Tier on account of increase in deposits in any year, it may be provided a glide path of up to a maximum of three years, to comply with higher regulatory requirements," the RBI said in a circular. In another circular, the RBI has reportedly listed out the net worth and capital adequacy requirements of the UCBs.

UCBs which currently do not meet the revised minimum net worth requirement will have to achieve the minimum net worth of INR 2 crore or INR 5 crore (as applicable) in a phased manner, the report added.