A Reserve Bank of India (RBI) panel has proposed a new four-tier structure for regulating and improving urban cooperative banks (UCBs).
According to Regulation Asia, the RBI has published for consultation a report from an expert committee outlining a series of recommendations on how the country’s UCB’s can be improved.
The RBI set up an expert committee in February this year to examine ways to strengthen the resilience of UCBs. The report from the committee recommends the four-tier structure, with different capital adequacy and regulatory norms based on the deposit that the banks hold. To date, the current regulatory framework only has two tiers.
The RBI committee has also proposed establishing an umbrella organisation to oversee the banks, stating that “The UO should be financially strong and be well governed by a professional board and senior management, both of which are fit and proper.”
Under the framework proposed, the UO should provide UCBs cross liquidity and capital support when needed, while UCBs that are not members of the organisation should be mandated to maintain high capital and reserve levels.
The report underlined that the RBI should use mandatory mergers to resolve UCBs that do not meet prudential requirements. Those who do not meet all regulatory requirements, in addition, should be allowed to open more branches.
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