To overhaul and strengthen the urban cooperative bank (UCB) structure, an internal committee of the Reserve Bank of India (RBI) has recommended that UCBs with business size more than Rs 20,000 crore be allowed to convert into universal commercial banks while those with a lower size be converted to small finance banks.
A nine-member committee chaired by deputy governor R Gandhi to study and recommend improvements for UCBs released its report on Thursday where it detailed recommendations, including conversion of UCBs into full-service commercial banks, small finance banks and even issuing fresh licences to set up new stronger UCBs.
The committee also recommended stiff entry-point norms for new UCBs. It said that to operate as a multi-state UCB, the minimum capital requirement would be Rs 100 crore, to operate beyond two districts and as a state-level UCB, the capital threshold is Rs 50 crore and a capital of Rs 25 crore if the UCB is at the district level.
The committee recommends that licences for setting up UCBs be issued only to financially sound and well-managed cooperative credit societies with at least five years of track record as it reckons setting up an UCB from scratch is difficult. “It also said that providing banking access in unbanked areas should be done by incentivising existing banks and left it to the RBI to decide on the mode,” said the report.
Putting in place a Board of management as suggested by the Malegam committee has to be one of the mandatory licensing conditions for licensing new UCBs and expansion of existing ones, the committee has recommended. Further, the depositors must have a say on the Boards. For this, a majority of the board seats may be reserved for depositors by making suitable provisions in the bye-laws, the report said.
The committee was constituted in January by RBI to study the UCB model and it had to study the recommendations of earlier committee reports while making its own.