Urban co-operative banks get a policy boost

In an effort to ensure growth of well-managed and financially-sound urban cooperative banks (UCBs), the Reserve Bank of India (RBI) has proposed withdrawing restrictions on grant of multi-state status for those having a minimum net worth of Rs 50 crore.

UCBs (with a minimum net worth of Rs 50 crore) that have acquired weak banks in other states will be allowed to extend their area of operation to the entire state of registration of the target bank.

It also allowed Tier-II UCBs registered or deemed to be registered under the Multi-State Co-operative Societies Act to extend operation to the entire state of the original registration. It will issue detailed guidelines to facilitate operations in expanded areas.

RBI said it had set up the Y H Malegam panel to study the feasibility of granting licences for new urban banks. The committee would also look into the feasibility of an umbrella organisation for UCBs.

As a step to liberalise branch licensing policy, it said well-managed and financially-sound UCBs could open branches and extension counters beyond the current ceiling of 10 per cent in an existing or approved area of operation. However, they should ensure sufficient headroom capital for each branch.

It has permitted sound UCBs to engage business correspondents /business facilitators using information and communication technology solutions. This arrangement is expected to support efforts to bring more people within the fold of the formal banking system

The central bank has enhanced the existing limits on individual unsecured loans and advances extended by UCBs. Only urban banks complying with the capital to risk-weighted assets ratio of nine per cent would enjoy such a dispensation. The overall ceiling is kept at 10 per cent of total assets.

On exposure of UCBs to housing loans, RBI has decided to link loan exposure (of housing, real estate and commercial real estate) to total assets instead of deposits.

They can take exposure up to 10 per cent of total assets to these segments. An additional limit of five per cent will be available for housing loans to individuals for purchase/construction of dwelling units up to Rs 10 lakh. Earlier, the banks could lend to housing and realty up to 15 per cent of deposits.

Currently, it is mandatory for the borrowers to subscribe to the shares of the urban bank up to 2.5-5 per cent of their borrowings. In order to provide flexibility for extending loans without adding to the capital, RBI has proposed to exempt UCBs from maintaining a minimum capital adequacy ratio of 12 per cent on a continuous basis from the mandatory share linking norms.