Supervisory framework for Urban Co-operative Banks revised by RBI

The Reserve Bank of India (RBI) has decided to rationalize the Supervisory Action Framework (SAF) to make it more effective in bringing about the desired improvement in the Urban Co-operative Banks (UCBs) and also expeditious resolution of UCBs experiencing financial stress.

The revised framework released by the RBI on 6th January 2020 stipulates the thresholds for various parameters that could trigger a corrective action by the UCBs or a supervisory action by the RBI.

According to the RBI website, the central bank will continue to monitor asset quality, profitability and capital / net worth of UCBs under the revised SAF.

The revised SAF envisages initiation of corrective action by the UCB and/or supervisory action by the Reserve Bank on breach of the specified thresholds (triggers) in respect of the specified financial parameters/indicators.

A UCB may be placed under SAF when its Net NPAs exceed 6% of its net advances. Also, any UCB may be placed under SAF when it incurs losses for two consecutive financial years or has accumulated losses on its balance sheet. A UCB may be placed under SAF when its Capital to Risk-weighted Assets ratio (CRAR) falls below 9%.

The RBI shall take action such as imposition of all-inclusive directions under section 35A of the Banking Regulation Act, 1949 (as applicable to co-operative societies). Issue of show cause notice for cancellation of banking license may be considered by the Reserve bank when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors / public.