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RBI revises norms for classifying UCBs as financially sound & well managed

Mumbai, December 2, 2022 

The boards of the banks have to examine the compliance with the FWSM criteria and pass necessary resolutions and inform RBI immediately

As a step to enhance the profile of urban cooperative banks (UCBs), Reserve Bank of India today prescribed revised norms to categorise UCBs as Financially Sound and Well Managed (FSWM) banking entities. These norms are applicable with immediate effect.

For categorising themselves as FSWM category banks, the capital adequacy ratio should be atleast one per cent above the minimum CRAR applicable to an UCB as on the reference date. Also, net non-performing Assets (NPAs) should not be more than three per cent.

They should have reported Net profit for at least three out of the preceding four years. They should not have incurred a net loss in the immediate preceding year, RBI said.

Banking regulator has put emphasis on the liquidity status of banks. The bank should not have defaulted on maintaining Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) during the preceding year.

The bank should have a sound internal control system with at least two professional directors on the board and fully implemented core Banking Solution (CBS). Also, no monetary penalty should have been imposed on the bank for violation of RBI’s directives and guidelines during the last two financial years.

UCBs can decide the eligibility to be classified as a FSWM under the revised criteria based on the assessed financials and findings of RBI inspection report or audited financial statements, whichever is latest.

The boards of the banks have to examine the compliance with the FWSM criteria and pass necessary resolutions and inform RBI immediately. Definitely, it should not be later than within 15 calendar days from the date of passing the resolution.

UCBs may review the compliance with FSWM criteria every year at Board level immediately after the audit of the financial statements and RBI inspection report as and when received. This process will be subject to supervisory review, RBI added.

[The Business Standard]