RBI to Adopt Four Tiered Regulatory Framework

The Reserve Bank will implement a four-tiered regulatory framework with differentiated regulatory prescriptions in order to strengthen the financial soundness of existing Urban Cooperative Banks (UCBs).

The banking regulator has mandated that Tier-I UCBs operating in a single district have a minimum net worth of Rs 2 crore and all other UCBs have a minimum net worth of Rs 5 crore (of all tiers). "This is expected to strengthen banks' financial resilience and increase their ability to fund growth." According to the RBI's press release.

According to data submitted to the RBI by USBs, most UCBs have already met the requirement as of March 2021. Those who do not meet the requirement will be given a five-year glide path with intermediate milestones to ensure a smooth transition to the revised standards, according to the RBI.

Tier 1 UCBs include all unit UCBs and salary earner UCBs (regardless of deposit size), as well as all other UCBs with deposits up to Rs 100 crore. Tier 2 UCBs would have deposits greater than Rs100 crore but less than Rs1000 crore; Tier 3 UCBs would have deposits greater than Rs 1000 crore but less than Rs 10,000 crore; and Tier 4 UCBs would have deposits greater than Rs 10,000 crore. The new regularory prescriptions are based on the expert committee on Urban Co-operative Banks, which was appointed.