RBI moots special shares for UCBs as new source to raise capital

Special Share Certificates to be issued at book value without voting or membership rights; RBI says SSCs will be classified under Tier I capital for large UCBs

The Reserve Bank of India (RBI) has mooted a proposal for urban co-operative banks (UCBs) with deposits of more than Rs 10,000 crore to issue Special Share Certificates (SSCs) to their members or to persons residing within their area of operations. This will offer an additional avenue for raising capital, alongside the existing arrangement for issuing member shares.

 

These special shares are to be issued at book value and would carry the same face value as member shares. However, SSCs shall be issued without voting rights and will not confer any form of membership rights on investors, according to the RBI’s discussion paper on capital-raising avenues for UCBs.

 

SSCs will form part of Tier I capital. The amount received against the face value of SSCs is to be classified separately under “Schedule I – Capital” of the balance sheet. 

 

 

The RBI noted that a system of dual-class shares in co-operative institutions is well established internationally. It also pointed out that amendments to the Banking Regulation Act made in 2020 contain enabling provisions for the issuance of such special shares.

 

The premium—defined as the difference between the face value and the book value—received on SSCs may be transferred to a “Special Shares Premium Account”. This account may be disclosed under “Reserve Fund and Other Reserves”, the RBI added.

 

The outstanding amount of SSCs (excluding premium), along with the outstanding amount of Perpetual Non-Cumulative Preference Shares (PNCPS) and Perpetual Debt Instruments (PDIs), should not exceed 35 per cent of the total Tier I capital at any point in time.

 

The board of directors of the UCB will be empowered to determine the amount of SSCs to be raised by the bank. UCBs will be required to submit the offer document to the RBI—including all necessary details and disclosures regarding SSCs—at least one month prior to the issuance date.