Amidst news of cancellation of UCBs’ licences, there is good news for the sector. The Reserve Bank of India has revised the minimum percentage of Small Value Loans in aggregate loans and advances categories.
RBI has extended the glide path by two years to achieve the target of minimum percentage of small value loans in aggregate loans and advances at 40% by March 2025 and at 50% by 31st March 2026.
Releasing a circular in this connection, RBI said, “UCBs were required, inter alia, to have at least 50 per cent of their aggregate loans and advances comprising of Small Value Loans, i.e., loans of value not more than Rs 25 lakh or 0.2 per cent of their Tier I capital, whichever is higher, subject to a maximum of Rs 1 crore, per borrower”.
“The target date for complying with the above requirement was March 31, 2024. Taking into account the representations received by the bank citing certain difficulties being faced by the UCBs in this regard, it has been decided to extend the glide path to achieve the aforementioned target by two years”, the RBI said.
Meanwhile, Nafcub President Laxmi Dass hailed the decision of RBI in giving relief to the urban cooperative banks.
While talking to Indian Cooperative correspondent, Dass said, “NAFCUB on several occasion took up the issue with the RBI, as it is indeed difficult for UCBs to comply with this in view of the existing Business Model being followed by majority of the UCBs (Tier 2 to Tier 4).
This restriction is leading to migration of the existing quality borrowers from UCBs to other lenders in the market leading to reduction in market share of UCBs in the banking system”, he said.
“NAFCUB has therefore been requesting RBI/MOC and Ministry of Finance GOI to dispense with such a prescription”, Dass noted.
He further added, “NAFCUB has been opposing this provision as some of us have been operating for centuries without this. Some of us have been following our own unique business model without problems. Granting such relaxation as per glide path provided by RBI for a further period of two years in achieving the target of small loans in aggregate advances is a welcome step taken by RBI”, he said.
NAFCUB shall however continue to pursue with RBI for removal of such prescriptions and that the policies and prescriptions with regard to banking operations of UCBs should be growth oriented instead of restrictive and regressive in nature more particularly in the wake of stiff competition faced by UCBs from commercial banks, NBFCs and differentiated banks and FinTechs, said Dass.
In recent days, the urban cooperative banking sector has frequently been in the news for fines or license cancellations. However, this news will positively provide relief to especially larger urban cooperative banks, Dass stated.
