Urban Co-operative Banks (UCBs)

Urban Co-operative Banks (UCBs)

Subject: Economy

Context: The Reserve Bank of India (RBI) plans to permit Urban Co-operative Banks (UCBs) refund the share capital to their members, or nominees/ heirs of deceased members, on demand, subject to conditions, as per its draft guidelines

Concept:

The Reserve Bank of India (RBI) plans to permit Urban Co-operative Banks (UCBs) refund the share capital to their members, or nominees/ heirs of deceased members, on demand, subject to conditions, as per its draft guidelines In order to issue and regulation of share capital and securities by UCBs.

Conditions

• UCBs issuing regulatory capital instruments such as preference shares and debt instruments may be required to get a specific sign-off from the investors that they have understood the features and risks of the instruments
• UCBs can do so only if their capital to risk weighted assets ratio is 9 per cent or above, both as per the latest audited financial statements and the last CRAR as assessed by the central bank during statutory inspection
• The central bank emphasised that the refund should not result in the CRAR of the bank falling below regulatory minimum of 9 per cent.
• For floating rate instruments, banks cannot use their Fixed rate as benchmark.
• These banks need to ensure that all the publicity material / offer document, application form and other communication with the investor clearly state how the regulatory capital instruments are different from a fixed deposit, and that these instruments are not covered by deposit insurance
• UCBs shall have a board-approved policy on share-linking to borrowing norms, which shall be implemented in a transparent, consistent and non-discriminatory manner.
• A borrowing member may be required to hold shares for an amount that may be computed as per the extant share linking norms or for an amount that is 5 per cent of the total paid-up share capital of the bank, whichever is lower.