What changed
Previously, RBI only considered merger/amalgamation of UCBs with negative net worth. Now, RBI has added a new option: transfer of assets and liabilities (including branches) to commercial banks with DICGC support. This applies only to legacy cases where net worth was negative as of March 31, 2007, and remains negative at transfer date.
What it means for you
For weak UCBs that cannot find a merger partner within the cooperative sector, this provides a clear exit route to a commercial bank. Depositors get full protection, and DICGC support is capped at the amount under Section 16(2) of the DICGC Act. Transferee banks must follow detailed valuation guidelines and get regulatory approval.
What you must do
- Review your UCB's net worth position as of March 31, 2007, and current date to check eligibility.
- If eligible, initiate discussions with potential commercial bank transferees and obtain their regulatory approval.
- Ensure audit-cum-due diligence is conducted by independent auditors with DICGC concurrence.
- Place the new guidelines before your Board of Directors for information and action.
- Acknowledge receipt of this circular to your Regional Office of RBI.
Who it affects
Primary (Urban) Cooperative Banks with negative net worth as of March 31, 2007, Commercial banks interested in acquiring UCB assets and liabilities, Deposit Insurance and Credit Guarantee Corporation (DICGC), State Registrars of Cooperative Societies (RCS) in MOU states
What is a 'legacy case' for this transfer scheme?
A legacy case refers to a UCB whose net worth was assessed as negative through statutory inspections with reference to its financial position as on March 31, 2007 or earlier, and continues to have negative net worth as on the date of transfer.
Does this scheme guarantee full depositor protection?
Yes, the scheme must ensure 100% protection to depositors. DICGC support is restricted to the amount provided under Section 16(2) of the DICGC Act, 1961.
What assets are considered 'readily realizable' in the valuation?
Loans and advances classified as 'standard' assets and 'substandard' assets are considered readily realizable. 'Doubtful' and 'loss' assets are classified as non-readily realizable.