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Urban Co-operative banks to have four-tier regulatory framework

Published on July 20, 2022
Current Context: RBI will adopt a four-tier regulatory framework for Urban Co-operative Banks (UCBs) based on the deposit size and their area of operations to strengthen their financial conditions.
Urban Co-operative banks to have four-tier regulatory framework
  • An Expert Committee on Urban Co-operative banks appointed in February 2021 headed by N S Vishwanathan, former RBI deputy governor made the recommendations for strengthening the UCBs
  • For Tier 1 UCBs a minimum net worth of Rs 2 crore operating in a single district and Rs 5 crore for all other UCBs (of all tiers) has been specified.
  • As per the data as of March 2021, most UCBs comply with the requirements.
  • The UCBs which didn't meet the requirements will be provided a glide path of five years with intermediate milestones for transition to new criteria.
    • Tier 1 - UCBs are all unit UCBs and salary earned UCBs(irrespective of deposit size) and all other UCBs having deposits up to Rs 100 crore.
    • Tier 2 - UCBs with deposits from Rs 100 to Rs 1000 crore.
    • Tier 3 - UCBs with deposits more than Rs 1000 crore to Rs 10,000 crore.
    • Tier 4 - UCBs with deposits more than Rs 10,000 crore.
  • RBI has decided to introduce an automatic route for branch expansion of UCBs which meet the revised Financially Sound and Well Managed(FSWM) criteria and will permit the opening of new branches up to 10% of the number of branches at the end of the previous financial year.
  • RBI said the minimum capital to risk-weighted asset ratio(CRAR) for tier 1 banks is retained at 9 percent under the current capital adequacy framework based on Basel.
  • For tier 2, Tier 3, and Tier 4 UCBs RBI has decided to revise the minimum CRAR to 12 percent to strengthen the capital structure, while retaining the current capital adequacy framework.
  • Static Knowledge:
    • RBI governor - Shaktikanta Das (25th governor)
    • RBI headquarters - Mumbai
    • RBI was formed - on 1 April 1935


Q.1 An expert committee on Urban Co-operative banks headed by which former RBI Deputy Governor has decided to adopt a four-tier regulatory framework for UCBs?
a. N S Vishwanatan
b. B P Kanungo
c. Urjit Patel
d. Viral V Acharya
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