HYDERABAD: The Reserve Bank of India (RBI) on Monday rolled out its final Supervisory Action Framework (SAF) tightening norms for Urban Co-operative Banks (UCBs). The revised SAF will be implemented with immediate effect and the move comes close on the heels of the Punjab and Maharashtra Co-operative (PMC) Bank crisis and aims at avoiding the collapse of UCBs in future.
“Keeping in view the experience gained, it has been decided to further rationalise the SAF to make it more effective in bringing about the desired improvement in UCBs as the also expeditious resolution of UCBs experiencing financial stress. The RBI will continue to monitor asset quality, profitability and capital/net worth of UCBs under the revised SAF,” it said.
According to the norms, a UCB may be placed under SAF when its net NPAs exceed six per cent of its net advances and depending on the severity of stress, RBI may either advise it submit a board-approved action plan to lower NPAs or impose severe sanctions such as preventing the bank from sanctioning or renewing credit, or reduce exposure limits for fresh loans and advances besides others.
UCBs may also come under the scanner for incurring losses for two consecutive financial years or have accumulated losses on its balance sheet. Similarly, if CRAR falls below 9 per cent, they may be prohibited from declaring or paying the dividend, restricted from incurring capital expenditure beyond a specified limit, or be forced to lower administrative expenses besides others.
“Actions such as the imposition of all-inclusive directions under section 35A of the Banking Regulation Act, 1949 (as applicable to co-operative societies) and issue of show cause notice for cancellation of banking license may be considered by the RBI when continued normal functioning of the UCB...,” the RBI said.
Stress in other indicators
The RBI will not be precluded from taking appropriate action in case stress is noticed in other important indicators