RBI Tightens Supervisory Framework For Urban Co-operative Banks

Mumbai, January 7: In order to prevent PMC like scams, the Reserve Bank of India (RBI), has revised the Supervisory Action Framework (SAF) for primary Urban Co-operative Banks (UCBs). The decision came for rationalising the need to make SAF more effective for expeditious resolution of UCBs which are going through financial stress. To strengthen it further, RBI will continue its rights to monitor asset quality, profitability and capital/net worth of UCBs under the revised SAF. 

The regulator has revised certain features that include UCBs to be placed under SAF in case net Non-Performing Assets (NPA) exceed 6 per cent of its net advances. Further the RBI has also advised the UCB to submit a board-approved action plan for reducing NPAs below 6 per cent. “A UCB may be placed under SAF when it incurs losses for two consecutive financial years or has accumulated losses on its balance sheet,” said the regulator in a circular. For the same UCB has been asked to submit a board-approved action plan stating the ways to restore the profitability. If a UCB fails to maintain its Capital to Risk-weighted Assets Ratio (CRAR) above 9 per cent it will come under the scanner of SAF.

A board-approved action plan for increasing CRAR needs to be submitted within 12 months. “Supervisory action will normally be initiated on the basis of the financial position of UCBs as assessed during the statutory inspection. However, action may also be taken on the basis of the reported/audited financial position which may be subsequently reviewed, if necessary, on the basis of the statutory inspection findings,” noted the RBI. The revised SAF should be implemented with immediate effect, directed the RBI.