SUPERVISORY ACTION FRAMEWORK (SAF) FOR UCBS.

Related Articles

India-Korea Electronic Origin Data Exchange System (EODES)

December 10, 2023

Biosphere Reserve

November 3, 2023

Cheetahs in India

September 29, 2023

• Recently, a Reserve Bank of India (RBI)-appointed committee has suggested a four-tier structure for the Urban Cooperative Banks (UCBs).
• In June 2020, the Central government approved an Ordinance to bring all urban and multi-state co-operative banks under the direct supervision of the RBI.
• In January 2020, the RBI revised the Supervisory Action Framework (SAF) for UCBs.

Important points:

Based on the cooperativeness’ of the banks, availability of capital and other factors, UCBs may be categorised into four tiers for regulatory purposes:

1. Tier 1 with all unit UCBs and salary earner’s UCBs (irrespective of deposit size) and all other UCBs having deposits up to Rs 100 crore.
2. Tier 2 with UCBs of deposits between Rs 100 crore and Rs 1,000 crore.
3. Tier 3 with UCBs of deposits between Rs 1,000 crore and Rs 10,000 crore.
4. Tier 4 with UCBs of deposits more than Rs 10,000 crore.

The minimum Capital to Risk-Weighted Assets Ratio (CRAR) for them could vary from 9% to 15% and for Tier-4 UCBs the Basel III prescribed norms.

Umbrella Organisation:

• The committee has proposed setting up an Umbrella Organisation (UO) to oversee co-operative banks and suggested that they should be allowed to open more branches if they meet all regulatory requirements.
• The UO should be financially strong and be well governed by a professional board and senior management, both of which are fit and proper.
• Under the Banking Regulation (BR) Act, 1949 the RBI can prepare a scheme of compulsory amalgamation or reconstruction of UCBs, like banking companies.
• SAF should follow a twin-indicator approach – it should consider only asset quality and capital measured through Net Non-Performing Assets and CRAR – instead of triple indicators at present.
• The objective of the SAF should be to find a time-bound remedy to the financial stress of a bank.
• If a UCB remains under more stringent stages of SAF for a prolonged period, it may have an adverse effect on its operations and may further erode its financial position.

Need:

• Owing to lack of the desired level of regulatory comfort on account of the structural issues including ‘capital’ and the gaps in the statutory framework, the regulatory policies for co-operative banks have been restrictive with regard to their business operations, which, to some extent, has been one of the reasons affecting their growth.
• With the enactment of the Banking Regulation (Amendment) Act, 2020, the statutory gaps have been addressed to a very large extent.
• Given the importance of the sector in furthering financial inclusion and considering the large number of its customer base, it is imperative that the strategies adopted for the regulation of the sector are comprehensively reviewed so as to enhance its resilience and provide an enabling environment for its sustainable and stable growth in the medium term.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT