Executive Summary:
This circular from the Reserve Bank of India revises the criteria for classifying Urban Cooperative Banks (UCBs) as Financially Sound and Well Managed (FSWM), based on the recommendations of the Expert Committee on Primary Urban Cooperative Banks. UCBs are now permitted to self-classify as FSWM based on these revised criteria. The revised instructions are effective immediately and applicable to all Primary Urban Cooperative Banks.
Key Points / Main Content:
Revised FSWM Criteria:
To be classified as FSWM, UCBs must meet the following criteria:
* CRAR: At least 1 percentage point above the minimum CRAR applicable.
* Net NPA: Not more than 3%.
* Profitability: Net profit for at least three out of the preceding four years, with no net loss in the immediate preceding year.
* CRR/SLR: No default in maintaining CRR/SLR during the preceding financial year.
* Internal Controls: Sound internal control system with at least two professional directors on the Board.
* CBS: Fully implemented Core Banking Solution (CBS).
* Penalties: No monetary penalty imposed for violating RBI directives/guidelines during the last two financial years.
Self-Classification Process:
* UCBs can self-assess their eligibility for FSWM status based on the revised criteria, using assessed financials and RBI inspection reports or audited financial statements (whichever is latest).
* The UCB's Board must examine compliance, pass a resolution approving FSWM status, and inform the concerned Regional Office of Department of Supervision, Reserve Bank of India, within 15 calendar days of passing the resolution.
* UCBs should review FSWM compliance annually at the Board level, after the audit of financial statements and receipt of the RBI inspection report.
* This process will be subject to supervisory review.
Repealed Circulars:
* The circular lists several circulars that stand repealed due to the issuance of this circular.
Impact Analysis:
Primary Urban Cooperative Banks (UCBs):
Impact: UCBs are now governed by revised criteria for FSWM classification and permitted to self-classify.
Action Required: Assess their financials against the revised FSWM criteria, pass a board resolution if eligible, and inform the RBI Regional Office. Annually review FSWM compliance after audits and inspections.
Reserve Bank of India (RBI):
Impact: The RBI's supervisory role is updated to reflect the new self-classification process and revised criteria.
Action Required: Supervise the self-classification process of UCBs and ensure compliance with the revised FSWM criteria.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector.
Urban Cooperative Banks: Banks operating primarily in urban and semi-urban areas, regulated by the Reserve Bank of India.
Financially Sound and Well Managed: A classification assigned to Urban Cooperative Banks that meet certain financial and operational parameters set by the Reserve Bank of India.
DCBR.CO.LS PCB Cir.No.407.01.000201415: A circular issued by the Reserve Bank of India regarding the classification of Urban Cooperative Banks as Financially Sound and Well Managed.
Revised Regulatory Framework for Urban Cooperative Banks: A framework released by the Reserve Bank of India outlining revised regulations for Urban Cooperative Banks.
Expert Committee on Primary Urban Cooperative Banks: A committee formed to provide recommendations on the regulation of Primary Urban Cooperative Banks.
Department of Regulation, Central Office, Mumbai: A department within the Reserve Bank of India located in Mumbai.
Core Banking Solution: CBS, a system that allows banks to centralize their banking operations.
भारतीय �रज़व� ब�क
RESERVE BANK OF INDIA
RBI/2022-23/143
DOR.REG.No.85/07.01.000/2022-23 December 01, 2022
Madam / Sir
Review of norms for classification of Urban Co-operative Banks (UCBs) as
Financially Sound and Well Managed (FSWM)
In order to ensure a financially sound and stable co-operative sector, select UCBs are
termed as Financially Sound and Well Managed (FSWM) subject to fulfillment of certain
parameters. In this context, a reference is made to our circular DCBR.CO.LS (PCB)
Cir.No.4/07.01.000/2014-15 dated January 28, 2015 on “Review of norms for
classification of Urban Co-operative Banks (UCBs) as Financially Sound and Well
Managed (FSWM)” for criteria prescribed for considering the UCBs as FSWM.
2. It has been decided to revise the criteria for UCBs to be classified as FSWM. The
revised criteria in view of Revised Regulatory Framework for Urban Co-operative Banks
(UCBs) released by RBI on July 19, 2022 based on the recommendation of the Expert
Committee on Primary (Urban) Co-operative Banks are given in the Annex.
3. Further, the UCBs are now permitted to classify themselves as FSWM based on this
revised FSWM criteria.
Commencement
4. The revised instructions shall be applicable with immediate effect.
Applicability
5. This circular is applicable to all Primary (Urban) Co-operative Banks.
(Prakash Baliarsingh)
Chief General Manager
_____________________________________________________________________________________
िविनयमन िवभाग,क� द्रीय काया�लय,क� द्रीय काया�लय भवन,12वी/ं13वी ंमंिज़ल,शहीद भगत िसंह माग�,फोट�,मुबई- 400001
टेलीफोन/ Tel No: 22661602, 22601000 फै �/ Fax No: 022-2270 5691
Department of Regulation, Central Office, Central Office Building, 12th/ 13th Floor, Shahid Bhagat Singh Marg, Fort,
Mumbai – 400001
िहंदी आसान है, इसका प्रयोग बढ़ाइएAnnex
Review of norms for classification of Urban Co-operative Banks (UCBs) as
Financially Sound and Well Managed (FSWM)
The revised criteria, for determining the FSWM status have been given as under:
a) The CRAR shall be at least 1 percentage point above the minimum CRAR
applicable to an UCB as on the reference date;
b) Net NPA of not more than 3%;
c) Net profit for at least three out of the preceding four years subject to it not having
incurred a net loss in the immediate preceding year;
d) No default in the maintenance of CRR / SLR during the preceding financial year;
e) Sound internal control system with at least two professional directors on the Board;
f) Core Banking Solution (CBS) fully implemented; and
g) No monetary penalty should have been imposed on the bank on account of
violation of RBI directives / guidelines during the last two financial years.
2. The process of deciding the eligibility for being classified as a FSWM UCB may be
carried out by UCBs themselves as per 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 shall examine the compliance to the FWSM criteria and
pass necessary resolution approving the same and inform the concerned Regional Office
of Department of Supervision, Reserve Bank of India immediately, and in any case, not
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 as indicated above
immediately after the audit of the financial statements and RBI inspection report as and
when received. This process will be subject to supervisory review.
23. The following instructions/circulars stand repealed on the issue of this circular
Sl. No. Circular No. Date Subject
1. DCBR.CO.LS (PCB) January Circular on “Classification of
28, 2015 UCBs for Regulatory Purposes -
Cir.No.4/07.01.000/2014-15
Revised Norms”
2. UBD.CO.LS (PCB) October Definition of FSWM UCBs in
second para of circular on
Cir.No.20/07.01.000/2014-15 13, 2014
circular on “Review of norms for
classification of Urban Co-
operative Banks (UCBs) as
Financially Sound and Well
Managed (FSWM)”
3. UBD.CO.LS.(PCB).Cir.No.24/ October Definition of FSWM UCBs in
01, 2013 second para of circular on
07.01.000/2013-14
“Review of norms for
classification of Financially
Sound and Well Managed
(FSWM) Urban Co-operative
Banks (UCBs)”
4. UBD.CO.LS.Cir.No.26/ November Definition of FSWM UCBs in
second para of circular on “UCBs
07.01.000 /2010-11 16, 2010
–Norms for Opening of branches
and extension counters
Liberalised”
5. UBD.CO.LS.Cir.No.25/ November Definition of FSWM UCBs in first
para of circular on “Second
07.01.000/ 2010-11 16, 2010
Quarter Review of the Monetary
Policy for 2010-11 Extension of
Area of Operation-
Liberalisation”
34. The following circulars contain existing Guidelines/Directions by the Reserve Bank of
India on norms for classification of UCBs as FSWM.
Sl. No. Circular No. Date Subject
1. UBD.CO.LS (PCB) October Review of norms for classification
of Urban Co-operative Banks
Cir.No.20/07.01.000/2014- 13, 2014
(UCBs) as Financially Sound and
15
Well Managed (FSWM)
2. UBD.CO.LS.(PCB).Cir.No.2 October Review of norms for classification
of Financially Sound and Well
4/07.01.000/2013-14 01, 2013
Managed (FSWM) Urban Co-
operative Banks (UCBs)
3. UBD.CO.LS.Cir.No.26/ November UCBs –Norms for Opening of
branches and extension counters
07.01.000 /2010-11 16, 2010
Liberalised
4. UBD.CO.LS.Cir.No.25/ November Second Quarter Review of the
Monetary Policy for 2010-11
07.01.000/ 2010-11 16, 2010
Extension of Area of Operation-
Liberalisation
4