Tag: co-operative bank

Large cooperative banks are considering turning into universal banks as the regulator has tightened norms, especially steep priority sector lending targets.

The RBI had increased the overall priority sector lending (PSL) target for UCBs to 75% of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher from 40% earlier.

PSL portfolio comprises loans to agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, among others, which UCBs have to increase to 75% of their advances by March 2024.

The RBI said tier-1 capital as on March 31 of the preceding financial year shall be reckoned for the purpose of fixing the exposure limits.

“Tier-1 capital for the purpose will be the same as that prescribed for computation of capital adequacy of UCBs,” it said.

Under the new proposed rules by RBI in 2019, UCBs with deposits of Rs 100 crore are to set up a board for management with the board of directors carrying out due diligence for their appointment, bringing them at par with commercial banks.

Board of management norms

On December 31, 2019, the Reserve Bank of India had released the final guidelines for setting up a board of management (BoM) for such banks. According to the guidelines, UCBs with deposits of Rs 100 crore and will constitute the Board of management which will be a mandatory requirement for opening new branches.

“The board of directors (BoD) of a UCB perform both the executive and supervisory roles, and has the responsibility to oversee the functioning of UCB as a cooperative society, as well as its functions as a bank. Since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors,” said the RBI in its notification.

The BoM will comprise expert banking professionals. It will also exercise oversight on banking-related functions of the UCBs, assist the BoD on formulation of policies and any other related matter, specifically delegated to it by the board for proper functioning of the bank, it added.

Borrowing oversight

The BoM will also oversee the management of fund and borrowings, and recommend action for recovery of non-performing assets (NPAs). The Board of directors will continue to be the apex policy setting body and constitute various committees of the board, including the BoM, to assist the board in carrying out its responsibilities.

The BoM will be constituted by the BoD within a period of one year from the date of the circular, and have a minimum of five members and may have as many as 12 members. The chairman of the BoM may be elected by the members from among themselves, or appointed by the BoD, while the CEO will be a non-voting member.

Banks looking at going universal

Saraswat Co-operative Bank and Cosmos Co-operative Bank were planning to seek the Reserve Bank of India’s (RBI) approval to convert into full-fledged commercial banks, according to reports last year.

As at March-end 2020, there were 88 UCBs with deposits greater than or equal to Rs 1,000 crore and 50 UCBs with advances greater than or equal to Rs 1,000 crore, per RBI data.