Urban co-operative banks not interested to become SFB: RBI's Satish Marathe

UCBs will also have to comply with the latest guidelines for on-tap licensing of SFBs in the private sector

Urban co-operative banks (UCBs) are not interested in converting into small finance banks (SFBs) as it would lead to changes in their operations. As a result, only one UCB has applied for conversion, said Satish Marathe, founder member of Sahakar Bharati and member of the Reserve Bank of India’s (RBI’s) central board.

In 2018, the RBI issued guidelines for the voluntary transition to SFBs.

According to these guidelines, UCBs must have a minimum capital of Rs 50 crore and a capital-to-risk (weighted) asset ratio of 9 per cent or above to be eligible for transition.

UCBs will have 18 months to comply with these requirements.

Additionally, UCBs must adhere to the latest guidelines for on-tap licensing of SFBs in the private sector, which mandate that SFBs maintain a minimum net worth of Rs 100 crore from the commencement of business.

Marathe told Business Standard, “No UCB has applied to the RBI to convert into an SFB. Once a co-operative bank converts into an SFB, it will eventually have to get listed. Investors with deep pockets are likely to take over the SFB, causing the current board to lose control.”

Despite the voluntary transition scheme announced in late September 2018, only the Uttar Pradesh-based Shivalik Mercantile Co-operative Bank has converted into an SFB, beginning operations on April 26, 2021.

The banking regulator allowed UCBs to convert into SFBs due to the multi-state presence of certain banks and the lack of direct supervision by the RBI, which was a concern. However, in June 2020, the central government approved an ordinance bringing all urban and multi-state co-operative banks directly under the RBI.

Since the conversion will not enhance the work or culture of these UCBs, they prefer to maintain the status quo.

“Once it changes hands, the SFB will neither work towards nor nurture the objectives for which the co-operative was founded,” added Marathe.

Moreover, the banking regulator recently said that UCBs planning to voluntarily convert into SFBs must have an initial net worth of Rs 100 crore, increasing to Rs 200 crore within five years.

The banking regulator has also released guidelines on the voluntary conversion of SFBs into universal banks.