UCBs allowed to be converted into small finance banks

Indian Express, June 07, 2018

The Reserve Bank of India (RBI) on Wednesday said it will allow urban cooperative banks to voluntarily convert themselves into small finance banks.
“The High Powered Committee on urban cooperative banks (UCBs), chaired by R. Gandhi, the then Deputy Governor of Reserve Bank, had, inter alia, recommended the voluntary conversion of large Multi-State UCBs into Joint Stock Companies and other UCBs which meet certain criteria into Small Finance Banks (SFBs). Taking these recommendations into consideration, it has been decided to allow voluntary transition of UCBs meeting the prescribed criteria into SFBs,” said the regulator said in its statement on developmental and regulatory policies.
Deputy Governor NS Vishwanathan said the RBI will come out with a detailed scheme norms for conversion of urban cooperative banks into small finance banks.
“There has been demands from some quarters that we must allow them (UCBs) to corporatise. Since small finance banks also have the same mandate of financial inclusion as part of their fundamental business model, we will come out with a detailed scheme on this conversion of UCBs into small finance banks,” said Vishwanathan.
The High Powered Committee had earlier recommended that UCBs with business size less than Rs 20,000 crore be allowed to convert into small finance banks.
“Though UCBs were set up as small banks offering banking services to people of small means belonging to the lower and middle classes, a well laid out transition path is required for at least the larger UCBs to convert themselves into universal/ niche commercial banks due to the changing financial landscape in the country and providing further growth opportunity to well managed UCBs,” the committee report had said.
UCBs operate under a dual control regime with supervision of both the RBI and the State Governments. The committee report said that the weak resolution regime with respect to UCBs and non-availability of powers to the RBI to regulate and supervise UCBs at par with commercial banks has restrained RBI from relaxing regulatory regimes, which in turn is a hurdle for UCB’s commercialisation.
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