RBI panel suggests umbrella body for helping smaller UCBs scale up

What is the News?

The Reserve Bank of India(RBI) has released the report of the Expert Committee on Primary Urban Co-operative Banks(UCBs). 

About the Expert Committee on UCBs:

1. The committee was set up under the chairmanship of former RBI deputy governor N.S. Vishwanathan.
2. Mandate: To examine the issues and to provide a road map for strengthening the Urban Co-operative Banks(UCBs) sector. 

Key Recommendations of the Committee:

4 Tier Structure: The committee has suggested a four-tier structure for the urban cooperative banks (UCBs) depending upon the deposits:

1. Tier-1 with deposits up to  ₹100 crores; 
2. Tier-2 with deposits between  ₹100- ₹1,000 crores
3. Tier-3 with deposits between ₹1,000 crores to  ₹10,000 (They must function like Small Finance Banks(SFBs) if they meet regulatory requirements). 
4. Tier-4 with deposits of over  ₹10,000 crores (They should be allowed to function like universal banks if they meet all regulatory requirements).

Umbrella Organisation: 

1. The committee suggests setting up the umbrella organisation, with a minimum capital of Rs 300 crore.
2. It can act as a self-regulatory body for small UCBs. It should provide cross liquidity and capital support to the UCBs when needed.

Compulsory Amalgamation:

1. RBI can prepare a scheme of compulsory amalgamation or reconstruction of UCBs, like banking companies.
2. This may be resorted to when the required voluntary actions are not forthcoming or leading to desired results.

Supervisory Action Framework(SAF):

1. The objective of the Supervisory Action Framework (SAF) should be to find a time-bound remedy to the financial stress of a bank
2. SAF should adopt a twin indicator approach, wherein asset quality and capital are measured through Net non-performing Asset(NNPA) and Capital to Risk-Weighted Assets Ratio(CRAR) respectively. 

Use of Cloud Services:

1. The committee preferred the use of Cloud services as it will standardise the information technology platform across all member UCBs and would eliminate the need to have the skills or hire services to maintain IT infrastructure.

Terms to know:

• Urban Cooperative Banks (UCBs)