BackUrban co-op banks get nod to become SFBs
RBI on Wednesday said that it will allow voluntary transition of urban cooperative banks into small finance banks (SFBs) given that they meet the prescribed criteria
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Mumbai: The central bank on Wednesday said that it will allow voluntary transition of 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 high-powered 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.
“UCBs with capital funds in the range of ₹ 100 crore to ₹ 500 crore may be granted facilities akin to Small Finance Banks in the private sector. The Committee concluded that UCBs which are still not large enough but aspire to roll out all the products which are currently permissible for commercial banks may be allowed to convert to SFBs in order to get a pan-India presence." the report released in July 2015 stated. It had further stated that a business size of ₹ 20,000 crore could be considered the threshold limit, beyond which UCBs may convert themselves into commercial banks.
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. At present, there are ten SFBs operating in India.
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