The Reserve Bank of India (RBI) has published the “Regulations at a Glance” handbook, compiled by the Department of Regulation (DoR), to provide a comprehensive overview of important regulatory guidelines for different banking entities, including cooperative banks. The handbook presents key regulations in a table format for quick reference, but it is not intended to replace official circulars, Master Circulars, or Master Directions.
This article focuses on the crucial regulatory provisions for cooperative banks as detailed in the handbook.
Key Regulations for Cooperative Banks
1. Licensing of New Institutions
Urban Cooperative Banks (UCBs)
- Minimum paid-up capital/net worth: ₹12.5 lakh – ₹4 crore (depending on location and population size).
- Note: RBI has stopped accepting fresh applications for new UCBs since 2004.
Rural Cooperative Banks (StCBs & CCBs)
- Declared as State Cooperative Banks (StCBs) or Central Cooperative Banks (CCBs) by the state government.
- RBI grants licenses based on NABARD’s recommendations and internal assessment.
Promoters’ Criteria
- Evaluated on educational qualifications, professional competence, financial strength, capital mobilization ability, and membership eligibility.
2. Branch Licensing
Urban Cooperative Banks (UCBs)
- Automatic Route: UCBs classified as Financially Sound and Well Managed (FSWM) can open branches up to 10% of existing branches (min. 1, max. 5).
- Approval Route: FSWM UCBs must submit an Annual Business Plan (ABP) to RBI’s regional office by December 15.
State Cooperative Banks (StCBs)
- Require NABARD & RBI approval with conditions like:
- CRAR ≥ 9%, NNPA ≤ 5%, compliance record, and no penalties in last two years.
District Central Cooperative Banks (DCCBs)
Additional requirements,
- Operational for at least 3 years and net profit in last 2 years.
- Not under RBI restrictions.
3. Governance Framework
Regulated by
- State/Central Cooperative Society laws.
- Banking Regulation (BR) Act, 1949 (since 2020).
Key Provisions
- UCBs must form an Audit Committee of the Board.
- Fit and proper criteria for directors, MD/CEO, and WTD.
- Maximum continuous tenure limits for directors.
- Larger UCBs must appoint an independent Chief Risk Officer (CRO).
- NABARD issues governance guidelines for rural cooperative banks.
4. Credit Risk Management
Urban Cooperative Banks (UCBs)
- Loan against shares, bonds, and debentures: Max ₹10 lakh, LTV 50%.
Rural Cooperative Banks
- Loan against shares, bonds, and debentures: Max ₹5 lakh, LTV 50%.
Securitization of Standard Assets
- Allowed for SCBs, AIFIs, and NBFCs.
- Not allowed for RRBs and Cooperative Banks.
5. Interest Rate Framework & Deposit Pricing
General Principles
- Uniform interest rates across all branches/customers.
- No discrimination in deposit rates for similar amounts and dates.
- No negotiation of interest rates with individual depositors.
- NRE/NRO deposit rates cannot exceed domestic deposit rates.
6. Mergers & Amalgamations
Key Provisions
- Governed by the Banking Regulation (BR) Act, 1949.
- RBI has discretionary power under Section 44A to approve voluntary amalgamations.
- Private Bank Mergers: Must be approved by shareholders (2/3rd majority) before submission to RBI.
- UCB Mergers: Considered only if depositors’ funds are fully protected.
7. Resolution of Banking Companies & Cooperative Banks
Compulsory Amalgamation/Reconstruction
- RBI can apply to the government for restructuring under Section 45 of the BR Act.
- Section 45(4) (2020 Amendment): RBI can initiate amalgamations during a moratorium or at any other time.
