RBI panel for conversion of large UCBs into regular banks

An RBI panel today recommended converting urban cooperative banks (UCBs) with business size of Rs 20,000 crore or more into regular banks to allow them to grow and proliferate further for financial inclusion.
Large Multi-State Urban Cooperative Banks (MS-UCBs) having a presence in more than one state, dealing in forex and participating in the money market and payment systems could be systemically important.
"Their failure may have a contagion effect and unsettle the UCB sector. The systemic risk could be minimised if the large UCBs convert themselves into commercial banks as the statutory framework and prudential regulations with respect to commercial banks are more stringent and structured than those for UCBs," the panel said.

The Reserve Bank has placed on its website the report of the High Powered Committee on UCBs headed by its Deputy Governor R Gandhi.
The report comes a day after RBI gave 'in-principle' approval to 11 entities, including Reliance, Vodafone, Airtel and Department of Posts, to start niche payments banks.
"A business size of Rs 20,000 crore or more may be the threshold limit beyond which a UCB may be expected to convert to a commercial bank," the report recommended while discussing the size and conversion of MS-UCBs into joint stock bank.

The conversion, it said "need not be de jure compulsory" and large UCBs can continue the way they operate currently in terms of balance sheet/asset size.

However, they would not be permitted to extend all services or products "currently offered by commercial banks, unless they convert to commercial banks", it added.
Though UCBs were set-up as small banks offering banking services to people of small means belonging to lower and middle classes, the panel noted that there was an immediate need to chart a future path for them including a well laid out transition path to convert themselves into universal/niche commercial banks.
"This transition is required due to the changing financial landscape in the country and also for giving an opportunity to well-run UCBs to play a major role going forward," it said.

As conversion of UCBs into commercial banks requires requisite amendments in the provisions of the Cooperative Societies Acts of all states which is a long drawn out process, the Committee recommended that only UCBs which are registered under the Multi-state Co-operative Societies Act, 2002 may be considered for conversion to commercial banks.