Executive Summary:
This circular from the Reserve Bank of India (RBI) revises the Supervisory Action Framework (SAF) for Primary Urban Cooperative Banks (UCBs) to improve their effectiveness and expedite the resolution of financial stress. The revised SAF focuses on monitoring asset quality, profitability, and capital net worth. The revised SAF is implemented with immediate effect. UCBs must place a copy of this circular before their Board of Directors in its next meeting and send confirmation to the concerned Regional Office of Department of Supervision of RBI.
Key Points / Main Content:
* **Revised Supervisory Action Framework (SAF):**
* The RBI will monitor asset quality, profitability, and capital net worth of UCBs.
* Corrective actions will be initiated by UCBs and/or the RBI upon breaching specified thresholds for financial parameters.
* **Asset Quality:**
* UCBs with Net NPAs exceeding 6% of net advances may be placed under SAF.
* Possible RBI actions include:
* Requiring a Board-approved Action Plan for NPA reduction.
* Advising the Board to review progress regularly.
* Restricting dividend payments/donations without prior RBI approval.
* Curtailing credit to high-NPA sectors.
* Reducing exposure limits and restricting high-risk-weighted loans.
* **Profitability:**
* UCBs incurring losses for two consecutive years or with accumulated losses may be placed under SAF.
* Possible RBI actions include:
* Requiring a Board-approved Action Plan for restoring profitability/eliminating losses.
* Advising frequent reviews of the Action Plan.
* Prohibiting dividend payments/donations.
* Restricting capital expenditure without RBI approval.
* Implementing measures to reduce expenses.
* **Capital to Risk-weighted Assets Ratio (CRAR):**
* UCBs with CRAR falling below 9% may be placed under SAF.
* Possible RBI actions include:
* Requiring a Board-approved Action Plan to increase CRAR to 9% or above within 12 months.
* Advising frequent reviews of the Action Plan.
* Seeking a merger proposal or conversion into a credit society.
* Prohibiting dividend payments/donations.
* Restricting capital expenditure without RBI approval.
* Implementing measures to reduce expenses.
* Reducing exposure limits and restricting high-risk-weighted loans.
* Restricting balance sheet expansion and fresh borrowings (except for temporary liquidity).
* Prohibiting fresh loans/advances (except against collateral security).
* Prohibition on expansion of size of the deposits.
* **Other Actions:**
* RBI may impose directives under Section 35A of the Banking Regulation Act or issue show-cause notices for license cancellation if the UCB's normal functioning is against the interest of depositors/public.
* **Implementation:**
* Supervisory action is based on the UCB's financial position during statutory inspections or reported/audited financial positions.
* The RBI may take action based on other indicators, governance issues, or actions not specified in the circular.
* Supervisory action already taken under the earlier SAF will be reviewed.
Impact Analysis:
* **Primary Urban Cooperative Banks (UCBs):**
* *Impact:* UCBs are subject to revised supervisory actions based on asset quality, profitability, and CRAR thresholds, potentially impacting their lending activities, expenditure, and governance.
* *Action Required:* Review and comply with the revised SAF, implement necessary corrective action plans, and place the circular before the Board of Directors.
* **Reserve Bank of India (RBI):**
* *Impact:* The RBI is responsible for monitoring UCBs, initiating supervisory actions, and ensuring the stability of the cooperative banking sector.
* *Action Required:* Implement the revised SAF, review existing supervisory actions, and issue revised instructions to UCBs as needed.
* **Depositors of UCBs:**
* *Impact:* The revised SAF aims to protect depositors' interests by ensuring the financial health and stability of UCBs.
* *Action Required:* No direct action is required, but depositors benefit from the enhanced supervision and potential corrective actions imposed on UCBs.
* **Board of Directors of UCBs:**
* *Impact:* The Board of Directors are responsible for implementing and overseeing the corrective action plans required under the revised SAF.
* *Action Required:* The Board must review the circular, approve action plans as needed, and monitor the progress of these plans. They should also send confirmation of this review to the RBI.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and monetary policy.
Primary Urban Cooperative Banks: A type of cooperative bank in India that primarily serves urban areas.
Supervisory Action Framework: A framework used by the Reserve Bank of India to monitor and take corrective action regarding Urban Cooperative Banks.
Banking Regulation Act, 1949: An act of the Parliament of India to regulate the banking companies in India.
Net NPAs: Net Non-Performing Assets, a measure of asset quality in the banking sector.
CRAR: Capital to Risk-weighted Assets Ratio, a measure of a bank's capital adequacy.
BandraKurla Complex, Mumbai, Maharashtra: A business district in Mumbai where a central office of the Reserve Bank of India is located.
Neeraj Nigam: Chief General Manager at Reserve Bank of India
भारतीय �रज़व र् बक�
__________________________RESERVE BANK OF INDIA________________________
www.rbi.org.in
RBI/2019-20/135
DOR (PCB).BPD. Cir No. 9/12.05.001/2019-20 January 6, 2020
The Chief Executive Officer
All Primary (Urban) Co-operative Banks
Dear Sir / Madam,
Supervisory Action Framework for Primary (Urban) Co-operative Banks (UCBs)
Please refer to our circular UBD.BPD.(PCB). Cir No. 3/12.05.001/2014-15 dated November
27, 2014 on the captioned subject containing the Supervisory Action Framework (SAF) for
UCBs. Keeping in view the experience gained, it has been decided to further rationalize the
SAF to make it more effective in bringing about the desired improvement in the UCBs as also
expeditious resolution of UCBs experiencing financial stress. Reserve Bank will continue to
monitor asset quality, profitability and capital / net worth of UCBs under the revised SAF. The
main features of the revised SAF are indicated herein below:
2. Thresholds/triggers and Supervisory Action
The revised SAF envisages initiation of corrective action by the UCB and/or supervisory
action by the Reserve Bank on breach of the specified thresholds (triggers) in respect of the
specified financial parameters/indicators. The actions mentioned in the following paragraphs
may be taken on breach of the specified thresholds.
2.1 Asset quality: A UCB may be placed under SAF when its Net NPAs exceed 6% of its
net advances. Depending on the severity of stress, Reserve Bank may take one or more of
the following actions:
a) Advising the UCB to submit a Board-approved Action Plan for reducing its Net NPAs
below 6%
b) Advising the Board of Directors of the UCB to review the progress under the Action
Plan on quarterly/monthly basis
c) Advising the UCB to submit the post-review progress report to Reserve Bank
d) Restriction on declaration/payment of dividend/donation without prior approval of RBI
e) Curtailment of sanction/renewal of credit facilities to sectors/segments having high
proportion of NPAs/defaults
िविनयमन िवभाग, क��ीय कायार्लय, सी-7, पहली मंिज़ल, बान्�ा-कुला र्संकुल, बान्�ा (पूवर्), मुंबई - 400051, भारत
फोन: (022) 26571112; ई मेल: cgmdcbrco@rbi.org.in
Department of Regulation, Central Office, C-7, 1st Floor, Bandra-Kurla Complex, Mumbai - 400051, India
Phone: (022) 26571112; E-mail: cgmdcbrco@rbi.org.in
ब�क िहन्दी म� प�ाचार का स्वागत करता ह ै—
चेतावनी: भारतीय �रज़वर् बक� �ारा ई-मेल, डाक, एसएमएस या फोन कॉल के ज�रये कोई भी �ि�गत जानकारी जैसे ब�क खाते का ब्यौरा, पासवडर् आ�द नह� माँगा जाता है। यह धन रखने या
दने े का �स्ताव भी नह� करता है। ऐसे �स्ताव� का �कसी भी �कार से जवाब मत दीिजए।
Caution: RBI never sends mails, SMSs or makes calls asking for personal information like bank account details, passwords, etc.
It never keeps or offers funds to anyone. Please do not respond in any manner to such offers.f) Reduction in exposure limits for fresh loans and advances
g) Restriction on fresh loans and advances carrying risk-weights more than 100%
2.2 Profitability: A UCB may be placed under SAF when it incurs losses for two consecutive
financial years or has accumulated losses on its balance sheet. Depending on the severity
of stress, Reserve Bank may take one or more of the following actions:
a) Advising the UCB to submit a Board-approved Action Plan for restoring the
profitability and/or wiping out the accumulated losses
b) Advising the Board of Directors of the UCB to review of progress under the Action
Plan on quarterly (or more frequent) basis.
c) Prohibition on declaration/payment of dividend/donation
d) Restriction on incurring capital expenditure beyond a specified limit, without prior
approval of the Reserve Bank
e) Measures for reduction in interest and operating/administrative expenses
2.3 Capital to Risk-weighted Assets ratio (CRAR): A UCB may be placed under SAF when
its CRAR falls below 9%. Depending on the severity of stress, Reserve Bank may take one
or more of the following actions:
a) Advising the UCB to submit a Board-approved Action Plan for increasing the CRAR
to 9% or above within 12 months
b) Advising the Board of Directors of the UCB to review the progress under the Action
Plan on quarterly/monthly basis and submit the post-review progress report to
Reserve Bank
c) Seeking a Board-approved proposal for merging the UCB with another bank or
converting itself into a credit society
d) Prohibition on declaration/payment of dividend/donation
e) Restriction on incurring capital expenditure beyond a specified limit, without prior
approval of the Reserve Bank
f) Measures for reduction in interest and operating/administrative expenses
g) Reduction in exposure limits for fresh loans and advances
h) Restriction on fresh loans and advances carrying risk-weights beyond the specified
limit
i) Restriction on expansion of size of the balance sheet
j) Restriction on fresh borrowings, except for meeting temporary liquidity mismatches
k) Prohibition on sanction/disbursal of fresh loans and advances other than loans
against collateral security of term deposits / NSCs / KVPs / insurance policies
l) Prohibition on expansion of size of the deposits2.4 Actions such as imposition of all-inclusive directions under section 35A of the Banking
Regulation Act, 1949 (as applicable to co-operative societies) and issue of show cause notice
for cancellation of banking license may be considered by the Reserve bank when continued
normal functioning of the UCB is no longer considered to be in the interest of its depositors /
public.
3. Implementation of the revised SAF
3.1 Supervisory action will normally be initiated on the basis of the financial position of UCBs
as assessed during the statutory inspection. However, action may also be taken on the basis
of the reported/audited financial position which may be subsequently reviewed, if necessary,
on the basis of the statutory inspection findings.
3.2 Although supervisory action taken will primarily be based on the criteria specified under
the revised SAF, Reserve Bank will not be precluded from taking appropriate supervisory
action in case stress is noticed in other important indicators/parameters or in case of serious
governance issues. Reserve Bank will also not be precluded from taking any supervisory
actions other than those indicated in this circular, based on merits of each case.
3.3 The revised SAF will be implemented with immediate effect. Supervisory action already
taken under the earlier SAF will be reviewed and revised instructions, if any, will be issued
to the UCBs concerned.
4. A copy of this circular should be placed before the Board of Directors of your bank in its
next meeting and a confirmation thereof should be sent to the concerned Regional Office of
Department of Supervision of Reserve Bank of India.
Yours faithfully,
(Neeraj Nigam)
Chief General Manager