Stressed urban cooperative banks to face PCA-like curbs

RBI’s action includes cancellation of banking licence

January 06, 2020 10:07 pm | Updated 10:10 pm IST - Mumbai

The Reserve Bank of India (RBI) has decided to impose restrictions on urban cooperative banks (UCBs) for deterioration of financial position, in line with the prompt corrective action (PCA) framework that is imposed on commercial banks.

Under this revised Supervisory Action Framework (SAF), UCBs will face restrictions for worsening of three parameters: when net non-performing assets exceed 6% of net advances, when they incur losses for two consecutive financial years or have accumulated losses on their balance sheets, and if capital adequacy ratio falls below 9%.

Action can be also taken if there are serious governance issues, RBI said.

For breach of such risk thresholds, UCBs will be asked to submit a board-approved action plan to correct the situation like reducing net NPAs below 6%, for restoring the profitability and wiping out the accumulated losses, and increasing capital adequacy ratio to 9% or above within 12 months.

The board of the UCB will be asked to review the progress under the action plan on quarterly/monthly basis and submit the post-review progress report to the RBI.

The RBI may also seek a board-approved proposal for merging the UCB with another bank or converting itself into a credit society if CAR falls below 9%. It can impose restrictions on declaration or payment of dividend or donation without prior approval if any one of the risk thresholds is breached. Some of the other curbs include restricting fresh loans and advances carrying risk-weights more than 100% on incurring capital expenditure beyond a specified limit and on expansion of the balance sheet.

The RBI said actions such as imposition of all-inclusive directions under Section 35A of the Banking Regulation Act, 1949, and issue of show-cause notice for cancellation of banking licence may be considered when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors/public.

The move comes in the wake of the recent crisis at the PMC Bank.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.