RBI proposes easing business authorisation norms for urban co-op banks

The RBI on Monday proposed to replace the existing norms for urban cooperative banks (UCBs) with a harmonised eligibility criteria for certain business authorisations, permissions and approvals.

The Reserve Bank has proposed that large UCBs (falling in Tier 3 and Tier 4 categories) which are in compliance with eligibility criteria for business authorisation (ECBA) and having a minimum assessed net worth (ANW) of Rs 50 crore may extend their area of operation beyond the state of registration, subject to prior approval of the Reserve Bank.

The UCB would be permitted to extend its area of operation to a maximum of two states in a financial year, subject to the availability of adequate headroom capital required for opening at least five branches in each proposed state, said the draft Master Direction Business Authorization for Co-operative Banks (Directions), 2025.

A UCB may extend its area of operation to the whole of its district of registration without prior permission from the RBI, it said.

"A UCB in compliance with ECBA may extend its area of operation to a maximum of three districts of its choice within its state of registration (other than its district of registration), without prior permission from the Reserve Bank," said the draft on which the RBI has invited comments till August 25, 2025.

A bank will be considered as fully complying with ECBA if it meets certain criteria, including regulatory minimum applicable CRAR for the bank, net NPAs of not more than 3 per cent, and net profits during the preceding two financial years.

The RBI has categorised UCBs in four tiers for regulatory purposes.

UCBs with deposits of more than Rs 1,000 crore and up to Rs 10,000 crore fall in Tier 3 and those with deposits of more than Rs 10,000 in Tier 4.

The draft also said a bank should determine its compliance with the ECBA every year based on the audited financial statements as of 31 March of the immediately preceding fiscal year and place it before its Board within 30 days from the date of adoption of the audit report.