RBI announces scheme for voluntary transition of urban coop banks to become small-finance banks

In a bid to encourage voluntary transition of eligible urban co-operative banks (UCBs) into small finance banks (SFBs), the Reserve Bank of India, in a report, said that scheduled UCBs (SUCBs) were comparable with SFBs in terms of net worth and gross loans and advances as of March-end 2018.

RBI, in September 2018, announced a scheme for voluntary transition of UCBs into SFBs. UCBs with a minimum net worth of Rs.50 crore and a CRAR of 9% and above are eligible for a voluntary transition.

This is aimed as a step forward to provide a full suite of products/services, sustain competition, raise capital, etc. Accordingly, this scheme has been introduced for voluntary transition of a UCB into an SFB by way of transfer of assets and liabilities.

“UCBs are increasingly facing competition from new players like payments banks, SFBs and NBFCs…The Reserve Bank introduced a scheme for voluntary transition of UCBs into SFBs to strengthen regulation and increase opportunities for growth…This will enable them to roll out most of the products which are currently permissible to commercial banks and help them in getting a pan-India presence,” said the Report on Trend and Progress of Banking in India 2017-18.

UCBs with a minimum net worth of Rs.50 crore and a CRAR (credit to risk-weighted assets ratio) of 9 per cent and above are eligible for the voluntary transition. Upon commencement of business, the converted entity must have a minimum net worth of Rs.100 crore, and the promoters should hold at least 26 per cent of the paid-up equity capital.