RBI should come up with on-tap licences for UCBs, says Satish Marathe

The recent revised guidelines on urban cooperative banks (UCBs), which was announced by the Reserve Bank of India (RBI) on Tuesday, will put these lenders on growth path, though there is a need to further liberalise the sector by offering new bank licences, said Satish Marathe, board member of the central bank.
 
The revised guidelines on UCB proposed a four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing UCB. Capital requirements of larger lenders have been increased, while branch expansion has been made automatic, among others.
 
An expert committee on UCBs under the chairmanship of NS Vishwanathan, former RBI deputy governor, was formed and based on the panel’s recommendation, the revised norms were finalised.

 

In an interaction with Business Standard, Marathe said Sahakar Bharati — a pan-Indian organisation of Cooperators and Cooperatives of which he is a founder-member — had suggested the Vishwanathan committee about the need for new licences for entry of UCBs.
 
“You are allowing the opening of all types of banks on tap these days. We need many small banks in the country,” Marathe said.
 
“I told the RBI that you decide your entry points and viability norms. Those who feel they can do it, can apply. You can always examine if they are fit and proper. That has not been addressed in the revised guidelines,” he said.

 
The banking regulator has opened up the bank licensing norms by making it on tap for universal banks and small finance banks. Anyone who wishes to apply for a licence can do so at any point and not have to wait for a window.
 
“We have too many very large credit cooperative societies, of deposits of more than Rs 2,000 crore, Rs 3,000 crore. Some of them are inclined to convert themselves into banks. We need to protect depositors of these credit societies also. They need to be brought under proper regulation and supervision. Sahakar Bharti had made recommendations to the expert committee,” he said.

 
Marathe said the norms of higher capital requirements for larger UCBs was necessary because these lenders will need to shore up their risk-bearing capacity.
 
The banking regulator has mandated 12 per cent capital adequacy ratio for tier-2 to tier-4 UCBs. Such UCBs have been given four years to meet the higher capital norms.
 
According to the data reported by the banks to the RBI as on March 31, 2021, most UCBs have CRAR more than 12 per cent (1,274 banks out of 1,534).
 
“Higher cap requirement is necessary. Otherwise, it is the depositors who suffer. So banks have to shore up their risk bearing capacity. They have given a glide path also... fairly good glide path, the banks should be able to do,” Marathe added.

 

The classification
 
Tier 1: All unit UCBs and salary earner’s UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs 100 crore
 
Tier 2: UCBs with deposits more than Rs 100 crore and up to Rs 1,000 crore
 
Tier 3: UCBs with deposits more than Rs 1,000 crore and up to Rs 10,000 crore
 
Tier 4: UCBs with deposits more than Rs 10,000 crore