Urban cooperative banks now have a chance to become small finance banks

Based on recommendation made by the High Powered Committee, the Reserve Bank of India (RBI) on Wednesday decided to allow voluntary transition of Urban Cooperative Banks (UCBs) into Small Finance Banks (SFBs).

In a statement on developmental and regulatory policies, the central bank said it has decided to allow voluntary transition of UCBs meeting the prescribed criteria to convert into SFBs, based on recommendations made by the High Powered Committee on Urban Cooperative Banks in August 2015. The committee was chaired by R Gandhi, the then Deputy Governor of Reserve Bank.

The panel had recommended voluntary conversion of large Multi-State UCBs into Joint Stock Companies and other UCBs, which meet certain criteria, into SFBs.

The Reserve Bank said that the details of the scheme will be announced separately.

Recommendation of the committee

The panel had in 2015, recommended converting UCBs with business size of Rs 20,000 crore or more into regular banks in a bid to propel their growth.

The report submitted by the panel had stated that smaller UCBs voluntarily willing to convert to SFBs can do so irrespective of the threshold limit, provided they fulfil all the eligibility criteria and selection process prescribed by the Reserve Bank and further provided that the small finance banks licensing window is open.

The committee had also unanimously recommends that licenses may be issued to “financially sound and well-managed co-operative credit societies” having a minimum track record of five years which satisfy the regulatory prescriptions set by the central bank as licensing conditions.

RBI’s Monetary Policy Committee (MPC) on Wednesday decided to hike its key lending rate — the repo rate — by 25 bps to 6.25 percent.

The committee in its commentary said that consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6.0 percent and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 percent.