RBI hikes capital adequacy ratio for urban cooperative banks to 12%

The Reserve Bank of India has hiked the minimum capital adequacy ratio (CAR) for Urban Cooperative Banks (UCBs) with deposits above Rs 100 crore to 12 per cent from the earlier floor of 9.0 per cent.

It has provided a glide path till March 2026 to meet revised CAR norm in phases for UCBs that don’t meet it currently.

It has retained the norm of a minimum CAR of 9 per cent for tier-1 banks (those with deposits up to Rs 100 crore).

RBI in a statement said it has decided to adopt a simple four-tiered regulatory framework with differentiated regulatory prescriptions to strengthen the financial soundness of the existing UCBs. This is based on recommendations of a panel headed by N S Vishwanathan, former Deputy Governor set up in February 2021.

According to the data reported by the banks as on March 31, 2021, most UCBs have a CRAR of more than 12 per cent (1,274 lenders out of 1,534).

The Tier-2 banks are UCBs with deposits of more than Rs 100 crore and up to Rs 1,000 crore; Tier-3 are UCBs with deposits of more than Rs 1,000 crore and up to Rs 10,000 crore. The final layer, Tier-4. consists of banks with deposits exceeding Rs 10,000 crore.

RBI will adopt a liberal approach to branch expansion by Urban banks, and will introduce an automatic route for UCBs that meet the revised Financially Sound and Well Managed (FSWM) norms. Such banks will be allowed to expand their branch network by up to 10 per cent over the number of branches at the end of the previous financial year.

While the branch expansion proposals under the prior-approval route will also continue, the process will be simplified in order to reduce the time taken for granting approvals for new branches.

RBI said in order to boost business opportunities for housing loans, risk weights will now be assigned on the basis of loan-to-value (LTV) ratio alone. This is expected to bring capital savings, and will apply to all UCB tiers.

RBI added that revaluation reserves will be considered for inclusion in Tier-I capital subject to applicable discounts on the lines of scheduled commercial banks.