RBI to put Urban Cooperative banks under vigil if their net NPA hits 6 pc

Tightening its vigil, the RBI on Monday revised the Supervisory Action Framework (SAF) for urban cooperative banks to ensure expeditious resolution of financial stress being faced by some of them with the apex bank to place them under supervision if net NPAs exceed 6 pr cent.

Depending upon the severity of the stress, the central bank may ask them to curtail their lending powers, among other safeguards.

An urban cooperative bank could also be placed under SAF when it incurs losses for two consecutive financial years or has accumulated losses on its balance-sheet. The RBI's trigger is the mess at the PMC Bank recently.

Further, issue of show cause notice for cancellation of banking license may be considered by the RBI "when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors/public", the notification said.

"Supervisory action already taken under the earlier SAF will be reviewed and revised instructions, if any, will be issued to the UCBs concerned," it added.

Following the exposure of scam in the PMC Bank, which has over 9.15 lakh depositors, the RBI imposed restrictions on withdrawals.

A UCB may also be placed under SAF when its CRAR falls below 9 per cent. Depending on the severity of stress, the RBI may take one or more of the actions - advising the UCB to submit a Board-approved Action Plan for increasing the CRAR to 9 per cent or above within 12 months, advising the Board of Directors of the UCB to review the progress under the Action Plan on a quarterly/monthly basis and submit the post-review progress report to the RBI.

This may also need reduction in exposure limits for fresh loans and advances and restriction on fresh loans and advances carrying risk-weights beyond the specified limit. Restriction on expansion of size of the balance sheet can also be applied.

Restriction on fresh borrowings, except for meeting temporary liquidity mismatches, could follw as a plan and prohibition on sanction/disbursal of fresh loans and advances other than loans against collateral security of term deposits/NSCs/KVPs/insurance policies.

Prohibition on expansion of size of the deposits is also an RBI formula to check the UCBs.