In the wake of the Banking Regulation (Amendment) Act, 2020 allowing UCBs to raise capital from the market, RBI has come up with Draft Circular on ‘Issue and regulation of share capital and securities – Primary (Urban) Co-operative Banks’.
Comments on the Draft Circular are invited from UCBs, sector participants and other interested parties by August 31, 2021, says a press release by the RBI. The RBI has also sought comment from State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs).
In a letter written to CEOs of the UCBs, the RBI says the extant instructions for UCBs on issue and regulation of capital funds have been reviewed keeping in view, inter alia, the provisions of Section 12 read with Section 56 of the amended Banking Regulation Act, 1949 (BR Act).
UCBs are permitted to raise equity share capital, as hitherto, by way of (i) issue of equity shares to persons within their area of operation enrolled as members, in accordance with the provisions of their bye-laws, and (ii) issue of additional equity shares to the existing members.
UCBs are also permitted to augment their capital by issuing Preference Shares and Debt instruments. The guidelines governing the instruments indicating the regulatory requirements, are enclosed in Annexes.
RBI suggests that for floating rate instruments, banks should not use its Fixed Deposit rate as benchmark. A specific sign-off from the investors, for having understood the features and risks of the instruments, may be incorporated in the common application form of the proposed issue.
UCBs shall ensure that all the publicity material / offer document, application form and other communication with the investor should clearly state in bold letters is different from a fixed deposit, and that these instruments are not covered by deposit insurance.
It has been decided to permit UCBs to refund the share capital to their members, or nominees / heirs of deceased members, on demand, subject to the fact that the bank’s capital to risk-weighted assets ratio (CRAR) is 9 percent or above.
In the draft RBI has also laid down conditions of borrowings as they are linked to shareholdings of the borrowing members. 5 per cent of the borrowings, if the borrowings are on unsecured basis and 2.5 per cent of the borrowings, in case of secured borrowings.
Comments on the Draft Circular are invited from UCBs, sector participants and other interested parties by August 31, 2021, reads the release.
The detailed Circular can be accessed by clicking following link
https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4011