The Reserve Bank of India has unveiled a revised Supervisory Action Framework for urban co-operative banks (UCBs) whereby in the initial stage of deterioration in their financial position, self corrective action by banks' management is envisaged.
If necessary steps are not taken to improve their financials or the steps taken do not result in the required improvement in the financial position of the UCB, the Reserve Bank will step in and initiate supervisory actions as it deems necessary.
If the capital-to-risk-weighted assets ratio falls below 9 per cent or there is deterioration in asset quality or decline in profits, liquidity constraints and so on, the management of the UCB should take necessary corrective actions, on its own, with a view to improve the financial position of the bank, the RBI said in a notification.
The RBI would commence active monitoring of the performance of the bank if the self-corrective action by UCB does not work.
Under RBI supervision, the UCBs would, in the first stage, be required to submit to the RBI an action plan for improving their performance in the specific areas where there is a deterioration or cause of concern.
The second stage of the RBI's supervisory action would be in the form of pre-emptive action aimed at arresting further deterioration in the financial position of the bank.
In case of deposit erosion up to 10 per cent, the UCB will be advised to explore options for merger with another bank. If the deposits erosion is beyond 10 per cent and up to 25 per cent, the bank will be prohibited from acceptance of fresh deposits and repayment of deposits.
A showcause notice will be issued for cancellation of the licence of the bank in case of deposit erosion in excess of 25 per cent.