The Reserve Bank of India (RBI) has decided to implement system-based asset classification in urban co-operative banks (UCBs), prescribing a timeline based on their asset size.

The central bank said this move is aimed at improving the efficiency, transparency and integrity of the asset classification process.

System-based asset classification means asset classification (downgrading as well as upgrading) carried out by the core banking solution / computerised systems of the bank in an automated manner on an ongoing basis, based on the relevant RBI instructions/guidelines.

The RBI said UCBs having total assets of ₹2,000 crore or above as on March 31, 2020, have to implement system-based asset classification with effect from June 30, 2021.

UCBs having total assets of ₹1,000 crore or above but less than ₹2,000 crore as on March 31, 2020, and having self-assessed themselves as being under Level III or Level IV in terms of the Comprehensive Cyber Security Framework for UCBs, have to implement system-based asset classification with effect from September 30, 2021.

UCBs, which meet the aforementioned criteria as at the end of the current or subsequent financial years, have to implement system-based asset classification within a period of six months from the end of the financial year concerned.

For the smooth implementation of the system, the RBI said all concerned UCBs may conduct pilot/parallel run and evaluate the results for accuracy/integrity of the asset classification, in compliance with its applicable instructions. This is to ensure that they are ready for implementation of the system-based asset classification from the appointed date.

The central bank also encouraged UCBs not meeting the aforementioned criteria to voluntarily implement the system-based asset classification in their own interest.

As of March-end 2019, there were 1,544 UCBs in the country. The share of UCBs with assets greater than ₹1,000 crore was at 6.5 per cent (of 1,544 UCBs) in 2018-19.

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