A Reserve Bank of India (RBI) panel headed by RBI Deputy Governor R. Gandhi has recommended conversion of Urban Cooperative Banks (UCBs), which have revenue of more than Rs 20,000 crore into regular banks. The panel recommended that the concept of Board of Management put forward by the Malegam Committee has to be one of the licensing conditions for new UCBs and expansion of existing ones.
The panel said that in order to minimise the systemic risk, the committee has recommended that large UCBs convert themselves into commercial banks. While making recommendations it further said that the objective was allowing UCBs to grow and proliferate further for financial inclusion. Though, the panel has also clarified that the conversion will not be compulsory for large UCBs and they can continue the way they operate currently in terms of balance sheet or asset size.
It said that if they do not convert, large UCBs will be subject to regulatory guidelines which stipulate that the types of businesses they undertake remain within the limits of plain vanilla products and services, limiting growth prospects. The panel has further said that smaller UCBs with business size of less than Rs 20,000 crore who are willing to convert to Small Finance Banks can apply to the Reserve Bank for conversion. The RBI has also suggested that licenses may be issued to financially sound and well-managed cooperative credit societies having a minimum track record of five years to operate as UCBs.The RBI has invited suggestions and comments from public on this report by September 18.