R Gandhi panel recommended conversion of UCBs into Regular Banks
The High Powered Committee on Urban Co-operative Banks (UCBs) under the chairmanship of RBI Deputy Governor R Gandhi was constituted on 30 January 2015.
The Reserve Bank of India’s (RBI’s) High Powered Committee on Urban Cooperative Banks (UCBs) headed by RBI Deputy Governor R Gandhi in its report has recommended conversion of UCBs with business size of 20000 crore rupees or more into regular banks. This will allow them to grow and proliferate further for financial inclusion.
RBI on 20 August 2015 placed the panel’s report on its website and invited suggestions and comments from public on this report by 18 September 2015.
The important recommendations made by the HPC are briefly as under:
1. Business Size and Conversion of Multi-State UCBs into joint stock bank: A business size of 20000 crore rupees or more may be the threshold limit beyond which a UCB may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory. However, the types of businesses to be undertaken by those choosing not to convert may remain within the limits of plain vanilla products and services and hence, growth will be at a much slower pace. Their expansion in terms of branches, area of operations and business lines may thus be carefully calibrated.
2. Conversion of UCBs into Small Finance Banks (SFBs): Smaller UCBs with business size of less than 20000 crore rupees willing to convert to SFBs can apply to the Reserve Bank for conversion provided they fulfil all the eligibility criteria and selection processes prescribed by the Reserve Bank and further provided that the licensing window for SFBs is open.
3. Issue of fresh licences: Licenses may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of 5 years which satisfy the regulatory prescriptions set by the Reserve Bank as licensing conditions. For providing banking access in unbanked areas, the Reserve Bank may put in place an appropriate set of incentives for existing banks to open branches there.
4. Board of Management (BoM) in addition to Board of Directors (BoDs): Putting in place a BoM as suggested by the Malegam Committee has to be one of the mandatory licensing conditions for licensing of new UCBs and expansion of existing ones.
5. Entry Point Norms: The new Entry Point Norms (EPNs) may be as under:
• To operate as a Multi-State Urban Co-operative Bank- 100 crore rupees
• To operate beyond two districts and as a State level UCB - 50 crore rupees
• To operate as District level UCB (upto 2 districts) - 25 crore rupees
• In case of conversion of co-operative credit societies in unbanked areas and in the north-east, suitable relaxation may be made by the Reserve Bank.
6. Depositors as voting members: The depositors ought to have a say on the Boards of UCBs. For this, a majority of the board seats may be reserved for depositors by making suitable provisions in the bye-laws.
The High Powered Committee on Urban Co-operative Banks (UCBs) under the chairmanship of RBI Deputy Governor R Gandhi was constituted on 30 January 2015. The committee was formed to examine and recommend permissible business lines and appropriate size, and examine the issues with regard to conversion of UCBs into commercial banks besides determining whether the time is opportune to issue new licenses to UCBs as recommended by the Expert Committee on Licensing of New UCBs (Malegam Committee).
The committee was formed in accordance to the recommendation made by the Standing Advisory Committee (SAC) on UCBs in its meeting held on 20 October 2014.
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