RBI panel lays down roadmap for UCBs to become commercial bank

Panel recommends RBI should have powers to constitute UCB boards, remove directors, audit UCBs, winding up UCBs

In what could be a fresh lease of life to urban cooperative banks (UCB), the Reserve Bank of India (RBI) could grant a commercial banking licence to these entities, on certain conditions, if it goes by the Gandhi panel recommendations.

A committee headed by RBI Deputy Governor R Gandhi was set up to suggest the road ahead for these banks. It suggested that multi-state UCBs having business of more than Rs 20,000 crore could be granted a commercial banking licence. And, that RBI have the power, as it does for commercial banks, to constitute the board of directors, remove directors or supersede the board, auditing, winding up and liquidation.

“As conversion of UCBs into commercial banks requires certain amendments in the  provisions of the Cooperative Societies Acts of all states, a long-drawn process, (we) recommend only UCBs registered under the Multi-state Cooperative Societies Act, 2002, be considered for conversion to commercial banks,” the panel said.

UCBs with less than Rs 20,000 crore of business can apply for a small finance bank licence, it said. Such a bank would primarily undertake basic banking activities of accepting deposits and lending to unserved and underserved sections — small business units, marginal farmers, micro industries and unorganised sector entities. They’d be required to extend 75 per cent of adjusted net bank credit to priority sectors and at least 50 per cent of the loan portfolio should constitute loans and advances of up to Rs 25 lakh.

While RBI is in the process of granting licences to small finance banks, UCBs are excluded from the process. RBI is planning to announce such licences next month.

The committee has also suggested that new UCB licenses be issued to financially sound and well-managed co-operative credit societies, having a minimum record of five years.

“The committee recommends that the concept of board of management has to be one of the mandatory conditions for licensing of new UCBs and expansion of existing ones,” the panel said.

It is also in favour of depositors as voting members and that they have a say on the board of directors. “For this, a majority of the board seats may be reserved for depositors by making suitable provisions in the bye-laws,” it recommended.