In a letter written to Urban Co-operative Banks RBI has presented before them a revised Supervisory Action Framework, which is an updated version of its Framework in vogue since 2014. These new norms on NPA or CRAR are going to be damn tough for us, said several co-operators to Indian Cooperative.
The revised SAF envisages initiation of corrective action by UCBs or by the Reserve Bank on breach of the specified thresholds in respect of the specified financial parameters which include NPA, CRAR & size of deposits.
RBI suggests a set of actions need to be taken on breach of the specified thresholds. “A UCB may be placed under SAF when its Net NPAs exceed 6% of its net advances. Depending on the severity of stress, Reserve Bank may advise the UCB to submit a Board-approved Action Plan for reducing its Net NPAs below 6%, advise the Board of Directors of the UCB to review the progress under the Action Plan on quarterly/monthly basis.
RBI may also advise the UCB to submit the post-review progress report to Reserve Bank, restrict declaration/payment of dividend/donation without prior approval of RBI, curtailment of sanction/renewal of credit facilities to sectors/segments having high proportion of NPAs/defaults, reduction in exposure limits for fresh loans and advances and restriction on fresh loans and advances carrying risk-weights more than 100%.
Also, a UCB may be placed under SAF when it incurs losses for two consecutive financial years or has accumulated losses on its balance sheet. Depending on the severity of stress, Reserve Bank may advise the UCB to submit a Board-approved Action Plan for restoring the profitability and wiping out the accumulated losses.
Thirdly, a UCB may be placed under SAF when its CRAR falls below 9% and similarly call for a Board-approved Action Plan for increasing the CRAR to 9% or above within 12 months.
Actions such as 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 Reserve bank when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors / public.
Supervisory action will normally be initiated on the basis of the financial position of UCBs as assessed during the statutory inspection. However, action may also be taken on the basis of the reported/audited financial position which may be subsequently reviewed, if necessary, on the basis of the statutory inspection findings.
Although supervisory action taken will primarily be based on the criteria specified under the revised SAF, Reserve Bank will not be precluded from taking appropriate supervisory action in case stress is noticed in other important indicators/parameters or in case of serious
governance issues. Reserve Bank will also not be precluded from taking any supervisory actions other than those indicated in this circular, based on merits of each case.
The revised SAF will be implemented with immediate effect. Supervisory action already taken under the earlier SAF will be reviewed and revised instructions, if any, will be issued to the UCBs concerned.
RBI advises that a copy of this circular should be placed before the Board of Directors of the bank in its next meeting and a confirmation thereof should be sent to the concerned Regional Office of Department of Supervision of Reserve Bank of India.
