RBI Announces Revised Eligibility for UCBs in Second Schedule

The Reserve Bank of India (RBI) has announced new eligibility criteria for inclusion of Urban Co-operative Banks (UCBs) in the Second Schedule to the RBI Act, 1934. The Second Schedule lists the banks that are eligible to participate in the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements, and also enjoy certain benefits such as access to liquidity adjustment facility (LAF) and marginal standing facility (MSF).

Revised Eligibility Norms

According to a circular issued by RBI on January 17, 2024, the revised eligibility norms are as follows:

• The UCB should be a licensed Tier 3 or Tier 4 bank, as per the revised categorization norms for UCBs notified by RBI on December 01, 2022.
• The UCB should fulfill the criteria for being classified as a Financially Sound and Well Managed (FSWM) bank, as per the revised criteria notified by RBI on December 01, 2022.
• The UCB should have maintained minimum deposits required for categorization as a Tier 3 bank for two consecutive years.
• The UCB should have a capital adequacy ratio (CRAR) of at least 3 per cent more than the minimum CRAR requirement applicable to it.
• The UCB should not have any major regulatory and supervisory concerns.

These norms are based on a notification issued by the Government of India on September 04, 2023, which was published in the Gazette of India on September 23, 2023. The notification amended the sub-clause (iii) of clause (a) of sub-section (6) of section 42 of the RBI Act, 1934, which defines the eligible financial institutions for the purpose of SLR and CRR.

Application Process

The eligible UCBs that wish to be included in the Second Schedule should submit their application to the concerned Regional Office of Department of Supervision of RBI, along with the following documents:

• A copy of resolution passed by the Annual General Body/Board of Directors to make an application to RBI for inclusion in the Second Schedule and containing the name(s) of bank official(s) authorized to correspond with RBI in this regard.
• Major financial details of the bank together with copies of the published balance sheet for the last three years.

Benefits of Inclusion

The inclusion of UCBs in the Second Schedule will enable them to access various facilities and benefits offered by RBI, such as:

• Participation in SLR and CRR requirements, which will help them manage their liquidity and statutory obligations better.
• Access to LAF and MSF, which will provide them with short-term liquidity support from RBI at repo and reverse repo rates.
• Eligibility for availing refinance from National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB).
• Eligibility for issuing certificates of deposit (CDs), which will help them diversify their sources of funds and attract institutional investors.
• Eligibility for opening foreign currency accounts with authorized dealers in India, which will facilitate their international transactions and remittances.

Conclusion

The revision of eligibility norms for inclusion of UCBs in the Second Schedule is a welcome step by RBI, as it will bring them in conformity with the Revised Regulatory Framework and also enhance their financial stability and resilience. The eligible UCBs should apply for inclusion at the earliest and avail the benefits offered by RBI.