The National Federation of Urban Co-operative Banks and Credit Societies Ltd (NAFCUB) should expedite the process of setting up the Umbrella Organisation (UO) so that it can provide support with regard to IT infrastructure, capital, liquidity, and training, to its member urban co-operative banks (UCBs), according to a Reserve Bank of India panel.

The small UCBs with the support of the UO can emerge the neighbourhood bank of choice, the RBI’s Expert Committee on UCBs, headed by former Deputy Governor of RBI NS Vishwanathan, said in a report.

“Therefore, the Committee suggests that the grant of new licences for setting up UCBs could be considered after the UO satisfactorily emerges as a stabilising arrangement,” it added.

The committee felt that in the long run, the UO may take up the role of a Self-Regulatory Organization (SRO) for smaller UCBs, where the UO could run an independent audit/ inspection and supervisory division that may conduct both offsite and onsite supervision.

The branding partner

The panel observed that the UO should be the branding partner for the member UCBs and both because of this and the business model itself, it has a significant systemic role.

The committee noted that membership of UO, once it becomes operational, would mitigate market and operational risks for UCBs in lower tiers to a certain extent and, therefore, the capital to risk-weighted assets ratio (CRAR) requirement can be brought down. However, a glide path should be provided to UCBs to achieve the higher CRAR.

UO membership

The report said that if a Tier-1 UCB (with less than Rs 100 crore deposits) meets the minimum net worth criteria of ₹2 crore for those having area of operation within a district/ ₹5 crore for other Tier-1 banks and is a member of UO, the minimum CRAR could be pegged at 9 per cent.

For Tier-1 UCBs, which meets minimum net worth criteria but is not a member of UO, and vice-versa, the minimum CRAR could be 11.5 per cent.

If a Tier-1 UCB does not meet the net worth criteria and is not a member of UO, the CRAR could go up to 14 per cent.

For Tier-2 UCBs (deposits between ₹100 crore and up to ₹1,000 crore), the minimum CRAR could be 15 per cent on credit risk. The minimum CRAR requirement may be reduced by one per cent point upon the bank becoming a member of the UO.

For Tier-3 UCBs (deposits between ₹1,000 crore and up to ₹0,000 crore), the minimum CRAR could be 15 per cent as applicable to small finance banks.

For Tier 4 UCBs (deposits above ₹10,000 crore), the minimum CRAR could as per Basel III prescriptions as applicable to universal banks.