Urban Cooperative Banks: NS Vishwanathan Panel Report_00.1
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Urban Cooperative Banks: NS Vishwanathan Panel Report

 

Relevance

  • GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

Context

  • RBI has recently released the report of the high powered committee on Urban Cooperative Banks to frame a new RBI guidelines for urban cooperative banks which was set in February to examine the issues and to provide a road map for strengthening the sector.
  • The committee was headed by NS Vishwanathan, former RBI Deputy Governor.

 

Key recommendations

 

Four-tier structure

  • The NS Vishwanathan Panel on Urban Co-operative Banks has suggested a four-tier structure for the urban cooperative banks (UCBs) depending upon the deposits.
  • It has recommended splitting them into a four-tier structure and has prescribed different capital adequacy and regulatory norms for each tier.

 

Tiers Deposits
Tier-1 up to ₹100 crore
Tier-2 ₹100- ₹1,000 crore
Tier-3 ₹1,000 crore to ₹10,000
Tier-4 over ₹10,000 crore

 

 

Capital to Risk-Weighted Assets Ratio

  • The minimum Capital to Risk-Weighted Assets Ratio (CRAR) for cooperative banks could vary from 9% to 15%.
  • Tier-4 UCBs, however, should be allowed to function like universal banks if they meet the 9% capital adequacy ratio requirement and the leverage ratio.

 

Role of RBI

  • RBI should be largely neutral to voluntary consolidation except where it is suggested as a supervisory action.

 

UCB resolution

  • Under the Banking Regulation (BR) Act, the RBI can prepare scheme of compulsory amalgamation or reconstruction of UCBs, like it does for banking companies.

 

Urban Cooperative Banks: NS Vishwanathan Panel Report_50.1

 

Supervisory Action Framework

  • A Supervisory Action Framework (SAF) should be prepared that follow a twin-indicator approach instead of triple indicators at present.
    • Twin-indicator approach: Only asset quality and capital measured through NNPA and CRAR should be considered.
  • The objective of the SAF should be to find a time-bound remedy to the financial stress of a bank.

 

Umbrella Organisation

  • The NS Vishwanathan Panel also proposed the setting up of an umbrella organization (UO) with a minimum capital of ₹300 crore and a regulatory framework similar to non-banking financial companies.
    • This UO is empowered to take up the role of a self-regulatory organization for smaller UCBs.

 

FEMA amendment rules, 2021

 

Stock Exchange

  • UCBs should be permitted to list and trade in a recognized stock exchange.
  • RBI should be empowered to declare certain securities under the Securities Contract Regulation Act.

 

Housing loans

  • The maximum limit on housing loans may be prescribed as a percentage of Tier 1 capital.
  • For Tier 2 UCBs, the risk weight on housing loans may be prescribed based on size of the loan and loan-to-value (LTV) ratio, in line with SCBs (Scheduled Commercial Banks).

 

Two Broad Factors that has hinder UCBs performance

  • Internal factor: Many UCBs are small and do not have either the capability – financial or human resources – and/or possibly inclination to provide technology enabled financial services.
  • External factor: Restrictive regulatory environment under which UCBs operates.

 

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