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What are the regulatory conditions for Urban-Cooperative Banks in India?
The Centrum-Bharat Pe combined and takeover a bankrupt urban cooperative bank. The RBI has also granted an “in-principle” approval to Centrum Financial Services and BharatPe to set up a small finance bank (SFB). This marks the first instance of NBFCs, high-net worth individuals and fintech being allowed entry in the urban-cooperative bank (UCB) space.
Regulatory conditions for urban-cooperative bank (UCB):
- The RBI in 2019 brought UCBs with assets of Rs 500 crore and above under the Central Repository of Information on Large Credits reporting framework. These banks were also brought under the ambit of the prompt corrective action (PCA) architecture.
- The RBI also made it mandatory for UCBs with deposits of Rs 100 crore to set up a board for management with the board of directors carrying out the due diligence for their appointment.
- Further, the RBI has been aligning UCB regulation with that of mainstream banks, and has done away with dual regulation with state governments making these banks relatively more attractive for those with banking ambitions.
- The amendment to the Banking Regulation Act (1949) came into force for UCBs with effect from June 29, 2020. Section 45 of the amendment enables the central bank to reconstruct, or amalgamate a bank, with or without implementing a moratorium, with central government approval.
- The word “reconstruction” has been given wider connotation to include mergers, acquisitions and takeovers or demergers.
Major Committee recommendations regarding UCBs:
In 2015 R Gandhi Committee recommended that a business size of Rs 20,000 crore can be considered as threshold for the voluntary conversion of multi-state UCBs into commercial banks
Terms to Know:
- Urban-Cooperative Bank (UCB)
- Small Finance Bank (SFB)
- high-net worth individuals (HNIs)
- Banking Regulation Act
Source: Business Standard