RBI raises capital adequacy ratio of urban cooperative banks to 12%





The Reserve Bank of India has raised the minimum capital adequacy ratio (CAR) for city co-operative banks (UCBs) with deposits above Rs 100 crore to 12% from the previous floor of 9.0%.

It provided a glidepath through March 2026 to meet the phased-revised CAR standard for UCBs that currently do not meet it.

It retained the standard of a minimum CAR of 9% for Tier 1 banks (those with deposits up to Rs 100 crore).

In a statement, RBI said it has decided to adopt a simple four-tier regulatory framework with differentiated regulatory requirements to strengthen the financial strength of existing UCBs. This is based on the recommendations of a panel led by NS Vishwanathan, former Deputy Governor installed in February 2021.

According to data reported by banks as of March 31, 2021, most UCBs have a CRAR above 12% (1,274 out of 1,534 lenders).

Tier 2 banks are UCBs with deposits of over Rs 100 crore and up to Rs 1,000 crore; Tier 3 are UCBs with deposits of over Rs 1,000 crore and up to Rs 10,000 crore. The final layer, Tier-4. consists of banks with deposits exceeding Rs 10,000 crore.

RBI will take a liberal approach to branch expansion by city banks and introduce an automatic lane for UCBs that meet the revised Financially Sound and Well Managed (FSWM) standards. These banks will be allowed to expand their branch network by up to 10 percent over the number of branches at the end of the previous fiscal year.

While branch expansion proposals under the pre-approval process will also continue, the process will be streamlined to reduce the time needed to grant approvals for new branches.

RBI said that in order to boost business opportunities for home loans, risk weights will now be assigned based on the loan-to-value (LTV) ratio alone. This should generate capital savings and will apply at all levels of UCB.

RBI added that revaluation reserves will be considered for inclusion in Tier I capital subject to applicable discounts on regular commercial bank lines.


Sallie R. Loera