URBAN COOP BANKS GET NOD TO BECOME SFBS

MUMBAI: The central bank on Wednesday said that it will allow voluntary transition if urban cooperative banks (UCBs) into small finance banks (SFBs) given that they meet the prescribed criteria. The Reserve Bank of India (RBI) said that it will be issuing a detailed scheme in this regard but did not say when.

The decision to allow the transition has been made on the basis of a report submitted by the highpowered committee on urban cooperative banks headed by the then RBI deputy governor R Gandhi. “Considering that some UCBs have acquired the size akin to commercial banks, they may pose a risk to the system due to their scale and complexity of business. In view of this, the time was opportune to reflect on the appropriate size up to which a UCB may be allowed to grow without undue risk to the system. This became all the more relevant due to the weak resolution regime with respect to UCBs. In case of commercial banks, the present regulatory and legal framework provides reasonable power to RBI for an early resolution,” the report had stated.

The committee felt that due to the limited capacity to raise capital, lack of corporate governance, lack of a level playing field in regulation and supervision at par with commercial banks, all products/lines of businesses undertaken by commercial banks were not permitted to UCBs.

The report, therefore, envisaged conversion of UCBs to commercial banks and SFBs beyond a certain threshold with respect to their capital funds and business size. According to RBI data, some of the biggest UCBs in the country include Saraswat Co-operative Bank Ltd, Cosmos Co-operative Urban Bank Ltd and Shamrao Vithal Co-operative Bank Ltd.