The Reserve Bank of India (RBI) has released a draft master circular proposing a unified eligibility framework for Urban Cooperative Banks (UCBs), aimed at replacing the existing ‘Financially Sound and Well Managed’ (FSWM) criteria with harmonised norms across the sector.
As part of a comprehensive review, the RBI has proposed new Eligibility Criteria for Business Authorisations (ECBA), which would standardise conditions for granting business permissions, approvals, and other authorisations to all categories of UCBs.
To be considered fully compliant with ECBA, UCBs must meet several financial and operational benchmarks. These include maintaining the minimum capital adequacy ratio, keeping net non-performing assets (NPAs) below 3%, reporting net profits in the previous two financial years, and avoiding any default in maintaining statutory reserve requirements.
The draft circular also reiterates the RBI’s tier-wise classification of UCBs based on deposit size:
Tier 1: All unit UCBs and salary earners’ UCBs, regardless of deposit size, and other UCBs with deposits up to ₹100 crore.
Tier 2: UCBs with deposits between ₹100 crore and ₹1,000 crore.
Tier 3: UCBs with deposits between ₹1,000 crore and ₹10,000 crore.
Tier 4: UCBs with deposits above ₹10,000 crore.
These banks, primarily serving small borrowers, urban middle-class communities, and businesses with limited access to large commercial banks, play a crucial role in the cooperative banking ecosystem.
The RBI has also laid out conditions for UCBs seeking inclusion in the Second Schedule to the Reserve Bank of India Act, 1934. To qualify, a UCB must maintain a minimum deposit base of ₹1,000 crore for two consecutive years and hold a capital adequacy ratio that is at least 3% higher than the prescribed minimum.
The central bank has invited public comments on the draft circular, which aims to bring greater transparency, uniformity, and financial discipline to the functioning of UCBs.
