Capital adequacy ratio norms enforcement for UCBs advanced to FY23-end

In a surprise move, the Reserve Bank of India (RBI) advanced by a day the enforcement of capital adequacy and net worth norms for urban co-operative banks (UCBs), from the earlier date of April 1, 2023.

It has been decided that the instructions shall come into effect on March 31. All other instructions of the circular dated December 1, 2022, remain unchanged, the RBI said in its latest circular.

According to UCB executives, the RBI’s move may put banks in a difficult position as only a few days are left to refigure the norms’ enforcement.

In December 2022, the RBI said the circular — Revised Regulatory Framework for Urban Co-operative Banks – Net Worth and Capital Adequacy — is applicable to all primary UCBs. These instructions were to come into effect on April 1, 2023.

Under the revised norms, the RBI has categorised all unit UCBs into a four-tier structure. Banks having deposits up to Rs 100 crore have been placed in tier 1.

In tier 2, there will be UCBs with deposits between over Rs 100 crore and up to Rs 1,000 crore. Tier 3 will cover banks with deposits over Rs 1,000 crore and up to Rs 10,000 crore. UCBs with deposits of more than Rs 10,000 crore have been categorised in tier 4.

The RBI said cooperative banks in tier I shall have a minimum net worth of Rs 2 crore. All other UCBs (of all tiers) shall have a minimum net worth of Rs 5 crore. For UCBs, which do not meet the net worth norms, the RBI gave a glide path until March 31, 2028, to comply with revised norms.

Such UCBs shall achieve at least 50 per cent of the applicable minimum net worth on or before March 31, 2026, and the entire stipulated minimum net worth on or before March 31, 2028.

As for the capital adequacy ratio (CAR), the RBI said tier 1 UCBs shall maintain a minimum CAR of 9 per cent of risk-weighted assets (RWAs) on an ongoing basis. Tier 2 to tier 4 UCBs shall maintain a minimum CAR of 12 per cent of RWAs on an ongoing basis.

The RBI had spelt out a phased plan until March 31, 2026, for meeting the CAR criterion. UCBs in Tier 2 to 4, which do not currently meet the revised CAR of 12 per cent of RWAs, shall achieve the same in a phased manner.

Such UCBs shall achieve the CAR of at least 10 per cent by March 31, 2024, 11 per cent by March 31, 2025, and 12 per cent by March 31, 2026.