Overview: Implications of Recommendations by R. Gandhi Committee on UCBs

Overview: Implications of Recommendations by R. Gandhi Committee on UCBs

Question: RBI committee on UCBs headed by RBI Deputy Governor R. Gandhi has made several recommendations. Provide an overview of the implications of these recommendations

TOR of the High Powered Committee are as follows:

i. What lines of business (that commercial banks undertake) can be permitted for UCBs and what should be the benchmark in terms of size of business, capital requirement, regulatory regime and so on.;

ii. In light of the limited legal powers and resolution options, what should be the appropriate size upto which a UCB may be able to grow without undue risk to the system, under the current regulatory framework;

iii. When enabling legal framework is in place for conversion of a co-operative bank into a joint stock bank?

iv. What should be the criteria for allowing voluntary conversion by a UCB?

v. What should be the benchmarks in terms of asset size, capital, etc., for mandatory conversion of UCB to a Joint Stock bank?

vi. Examine whether the time is opportune to give license to new UCBs as per the recommendations of the Expert Committee on Licensing of New UCBs,/Malegam Committee and if so the modalities of taking forward the recommendations of this Committee;

vii. Assess Malegam Committee recommendation that 50 per cent in value of deposits should be held by voting members to assure that confidence regarding proper management is generated among investors.

viii. Alternatively committee sought to propose a feasible structure that puts majority voting in the hands of contributors of funds;

Implications of Recommendations

The RBI committee recommended that conversion and business size of multi state UCBs must be made into joint stock banks whereby business size of INR 20,000 or higher could be the threshold limit after which UCB may be converted into a commercial bank

- Smaller UCBs with business size of lower than INR 20,000 crore wishing to convert to SFBs can apply for conversion provided they meet selection criteria and licensing window for SFB is open

- Licenses should be issued to financially sound, efficiently managed cooperative credit societies with a minimal track record of 5 years which meet the regulatory prescriptions established by RBI as licensing conditions

- For provision of banking services to the unbanked, RBI may place a special set of incentives

- RBI Committee has also proposed a BoM in addition to a BoDs as one of the mandatory licensing conditions for licensing of fresh UCBs and expansion of current ones

Entry point norms have been specified by the recommendations, thereby indicating the following:

- To operate as a Multi-State Urban Co-operative Bank- INR 100 crore

- To operate beyond two districts and as a State level UCB - INR 50 crore

- To operate as District level UCB (upto 2 districts) - INR 25 crore

- While converting cooperative credit societies in NE and unbanked areas, suitable and appropriate relaxation will be made by the RBI

- Depositors will have a say on Boards of UCBs and a majority of board seats will be reserved for depositors by making relevant provisions in the bylaws

Facts and Stats

- High Powered Committee on Urban Cooperative Banks was constituted on 30th January 2015 under the chairmanship of RBI Deputy Governor R. gandhi

- Committee was formed to determine permissible business lines and appropriate size with respect to UCBs and testing of the conclusions of the Malegam Committee

The composition of the High Powered Committee will be as under

- Shri R Gandhi, Deputy Governor, Reserve Bank of India - Chairman

- Shri M.A.Narmawala, Commissioner for Co-operation & Registrar of Cooperative Societies, Gujarat

- Shri M.V.Tanksale, Chief Executive, Indian Banks’ Association

- Dr. M. L. Abhyankar, President, National Federation of Urban Co-operative Banks (NAFCUB)

- Shri S.K.Banerji, Managing Director, Saraswat Cooperative Bank Ltd

- Shri D Krishna, Former Chief Executive, NAFCUB

- Smt. Suma Varma, Principal Chief General Manager, DCBR, Reserve Bank of India will be the Member Secretary.

- Shri Joseph Raj, Joint Legal Adviser, Legal Department, Reserve Bank of India shall be a permanent invitee.