Provide licences to new UCBs, says RBI panel

A Reserve Bank of India-appointed panel has recommended that the existing financially healthy and well managed co-operative credit societies should get priority to start new urban cooperative banks (UCBs). It said new urban banks should be opened only in under-banked and unbanked areas.

In an effort to curb interference by directors (read political elements) with the workings of the bodies, the panel headed by Y H Malegam said the ownership and management in new urban banks should be segregated.

RBI would have unfettered powers to control and regulate the functioning of the new UCBs, management and chief executives. This arrangement will be exactly the same way as RBI controls and regulates a commercial bank.

UCBs, which want to operate only in one state, would need a capital of Rs 50 lakh. The bank which wishes to operate in more than one state after five years would have to start with a capital of Rs 5 crore.

Referring to the organisational structure for the new banks, the committee said it would have a board of management in addition to the board of directors. The management with a chief executive will direct and control the day-to-day workings of the bank. The appointment of the CEO shall be subject to RBI’s approval.

The panel said credit societies, which intent to start urban banks, must satisfy stringent financial health norms before the banking regulator considers their application for license. Such societies should have capital adequacy of not less than 12 per cent. They must have reported net profit for at least three financial years and have net non-performing assets below five per cent of advances. Their credit-deposit ratio must be below 60 per cent.