RBI Update: Revised Regulatory Framework for Urban Co-operative Banks (UCBs) – Net Worth and Capital Adequacy dated 1st December, 2022

Reserve Bank of India vide its Circular dated 1^st December, 2022 having regard to the Revised Regulatory Framework for Urban Co-operative Banks (UCBs) emanating from the recommendations of Expert Committee on Urban Co-operative Banks (Press Release: 2022-2023/561 dated July 19, 2022) and circular no. DOR.REG.No.84/07.01.000/2022-23 dated December 1, 2022, on Revised Regulatory Framework – Categorization of Urban Co-operative Banks (UCBs) for Regulatory Purposes has provided the detailed guidelines with respect to net worth and capital adequacy:

Net Worth UCBs shall have minimum net worth as under: Tier 1 UCBs operating in a single district shall have minimum net worth of ₹2 crore.All other UCBs (of all tiers) shall have minimum net worth of ₹5 crore.UCBs which currently do not meet the minimum net worth requirement, as above, shall achieve the minimum net worth of ₹2 crore or ₹5 crore (as applicable) in a phased manner. Such UCBs shall achieve at least 50 per cent of the applicable minimum net worth on or before March 31, 2026 and the entire stipulated minimum net worth on or before March 31, 2028. The computation of “Net worth”, for the purpose of these guidelines, is provided in the given Circular. Minimum capital to risk weighted assets ratio (CRAR) requirement UCBs shall maintain minimum CRAR as under: Tier 1 UCBs shall maintain, as hitherto, a minimum CRAR of 9 per cent of Risk Weighted Assets (RWAs) on an ongoing basis.Tier 2 to 4 UCBs shall maintain a minimum CRAR of 12 per cent of RWAs on an ongoing basis.UCBs in Tier 2 to 4, which do not currently meet the revised CRAR of 12 per cent of RWAs, shall achieve the same in a phased manner. Such UCBs shall achieve the CRAR of at least 10 per cent by March 31, 2024, 11 per cent by March 31, 2025, and 12 per cent by March 31, 2026. The Computation of CRAR will continue to be as specified in para 3 of the Master Circular DOR.CAP.REC.2/09.18.201/2022-23 dated April 1, 2022 on Prudential Norms on Capital Adequacy – Primary (Urban) Co-operative Banks (UCBs) i.e:   Revaluation Reserves Revaluation reserves, arising out of change in the carrying amount of a bank’s property consequent upon its revaluation, may henceforth be reckoned as Tier 1 capital at a discount of 55 per cent, subject to meeting the following conditions: the bank is able to sell the property readily at its own will and there is no legal impediment in selling the property;the revaluation reserves are presented/disclosed separately under “Reserve Fund and Other Reserves” in the Balance Sheet;revaluations are realistic, in accordance with applicable accounting standards.valuations are obtained, from two independent valuers, at least once in every three years;where the value of the property has been substantially impaired by any event, these are to be immediately revalued and appropriately factored into capital adequacy computations;the external auditor(s) of the bank have not expressed a qualified opinion on the revaluation of the property;the instructions on valuation of properties and other specific requirements as mentioned in Annex 1 (Guidelines on Valuation of Properties – Empanelment of Valuers) to the Master Circular DOR.CRE.REC.No.17/13.05.000/2022-23 dated April 8, 2022 on Management of Advances – UCBs, as amended from time to time, are strictly adhered to. Revaluation reserves which do not qualify as Tier 1 capital shall also not qualify as Tier 2 capital. The bank may choose to reckon revaluation reserves in Tier 1 capital or Tier 2 capital at its discretion, subject to fulfilment of all the conditions specified above.   Applicability This circular is applicable to all Primary (Urban) Co-operative Banks and shall come into effect from April 1, 2023.