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The Reserve Bank of India (RBI) has revised the criteria for urban co-operative banks (UCBs) for considering them as Financially Sound and Well Managed (FSWM).
One of the criteria that no monetary penalty should have been imposed on UCBs on account of violation of regulatory directives / guidelines during the last two financial years may be tough to meet, as the RBI has imposed penalties on many of these banks over the last couple of years.
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RBI said branches/subsidiaries of Indian banks in foreign jurisdictions as well as in IFSCs cannot deal in financial products linked to Indian Rupee unless specifically permitted by itAn UCB meeting criteria relating to capital to risk-weighted assets (CRAR) of at least 1 percentage point above the minimum CRAR and net non-performing assets (NPAs) of less than 3 per cent, among others, will be classified as FSWM.
The other criteria prescribed by RBI include: net profit for at least three out of the preceding four years subject to it not having incurred a net loss in the immediate preceding year; no default in the maintenance of cash reserve ratio/ statutory liquidity ratio during the preceding financial year; and sound internal control system with at least two professional directors on the Board.
UCBs have been permitted to classify themselves as FSWM based on this revised criteria.
Compliance
The RBI said the process of deciding the eligibility for being classified as a FSWM UCB may be carried out by UCBs themselves as per the revised criteria based on the assessed financials and findings of the central bank inspection report, or audited financial statements, whichever is latest.
The Boards of the banks shall examine the compliance to the FWSM criteria and pass necessary resolution approving the same and inform the Regional Office of Department of Supervision, Reserve Bank of India, immediately, and in any case, not later than within 15 calendar days from the date of passing the resolution.
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The applicant for the post of MD and CEO must have 15 years of mainstream banking experienceUCBs may review the compliance with FSWM criteria every year at the Board-level immediately after the audit of the financial statements and RBI inspection report as and when received. This process will be subject to supervisory review.
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