After 2 decades, RBI proposes reopening UCB licences, favours large credit societies, Pg19

Key Highlights:

• The RBI is considering reopening UCB licensing after two decades, potentially favoring large co-operative credit societies.
• The proposal suggests that only large co-operative credit societies with a proven track record should be considered for UCB licenses.
• As of March 31, 2025, there were 1,457 UCBs with total assets of Rs 7.38 lakh crore and deposits of Rs 5.84 lakh crore.
• The GNPA ratio for UCBs stood at 6.2% as of March 31, 2025, with a Net NPA of 0.7%.

Detailed Insights:

• The RBI halted UCB licensing two decades ago due to the financial instability of many newly licensed UCBs.
• The RBI suggests a minimum of 10 years of active operation and a good financial record of at least 5 years for co-operative credit societies to be eligible for a UCB license.
• To qualify for licensing, the assessed CRAR should be at least 12%, and the NNPA ratio should not exceed 3%.
• The RBI has concerns about capital raising, governance issues, and management fraud, especially in smaller UCBs.
• Amendments to the Banking Regulation Act, 1949, aimed at strengthening governance in UCBs, have faced legal challenges.
• As of FY25, 52% of UCBs held deposits below Rs 100 crore, constituting 5.6% of total deposits, while 7% held deposits above Rs 1,000 crore, constituting 62.5% of deposits.

Key Concepts Involved:

• Urban Co-operative Banks (UCBs): Financial institutions that operate in urban and semi-urban areas, primarily serving their members.
• Co-operative Credit Societies: Financial co-operatives that provide credit and financial services to their members.
• Capital to Risk-Weighted Assets Ratio (CRAR): A measure of a bank's capital in relation to its risk-weighted assets.
• Net Non-Performing Assets (NNPA): The value of non-performing assets minus any associated provisions for losses.