MUMBAI: The RBI on Wednesday decided that Urban Cooperative Banks should have more skin in the game and will be allowed soon to voluntarily convert themselves into small finance banks. Such a move will give UCBs flexibility to open branches, which is currently confined to a limited geography.
The central bank has received demand from some quarters to allow this conversion, Deputy Governor N S Vishwanathan said.
“We will come out with a detailed scheme on conversion from urban cooperative banks into small finance banks,” he told reporters after RBI’s second bi-monthly monetary policy announcement.
The decision to allow the conversion was based on the recommendations given by the high-powered committee led by former RBI deputy governor R Gandhi. The central bank is expected to release detailed guidelines shortly.
The committee, which submitted its report way back in July, 2015, had recommended the voluntary conversion of large multi-state Urban Cooperative Banks into joint stock companies and other UCBs, which meet certain criteria into small finance banks.
In fact, it even proposed a transition period for these UCBs to convert into commercial banks. As per the recommendations, businesses worth `20,000 crore could be considered the threshold limit, beyond which Urban Cooperative Banks may convert themselves into commercial banks. “Though Urban Cooperative Banks 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 Urban Cooperative Banks ,” the committee report noted.