What changed
RBI replaced the old Graded Supervisory Action with a new Supervisory Action Framework aligned to the CAMELS rating model introduced in 2009. The framework now mandates self-corrective action by UCB management when financial indicators deteriorate, followed by two stages of RBI intervention if improvement is insufficient.
What it means for you
UCBs must proactively address capital, asset quality, and profitability issues before RBI steps in. The first stage triggers active monitoring when CRAR falls below 6%, losses persist for two years, or GNPA exceeds 10%. The second stage involves pre-emptive restrictions like freezing deposits or advances, escalating with financial decline.
What you must do
- Monitor CRAR, asset quality, and profitability regularly; initiate self-corrective action if CRAR falls below 9% or GNPA rises.
- Prepare a time-bound action plan for capital augmentation, NPA recovery, and cost control; review progress at every board meeting.
- Submit quarterly/half-yearly returns on weak areas to RBI regional office if triggers like CRAR <6% or GNPA >10% are breached.
- Ensure board oversight of corrective measures to avoid escalation to stage 2 restrictions like deposit freezes or advance caps.
Who it affects
All Primary (Urban) Cooperative Banks, Board of Directors of UCBs, Senior management and compliance teams of UCBs
What triggers self-corrective action for UCBs under the new framework?
Self-corrective action is required when CRAR falls below 9%, asset quality deteriorates, profits decline, or liquidity constraints emerge. Management must identify causes and take measures like augmenting capital, monitoring NPAs, and improving profitability.
What are the two stages of RBI supervisory action?
Stage 1 involves active monitoring when CRAR is below 6%, losses for two consecutive years, GNPA exceeds 10%, top 20 deposits exceed 30% of total deposits, or CD ratio exceeds 70%. Stage 2 includes pre-emptive actions like restricting premature withdrawals, freezing advances/deposits, or prohibiting deposit acceptance.
How does the new framework differ from the old Graded Supervisory Action?
The old framework was based on a grading system. The new SAF aligns with the CAMELS rating model and introduces a structured two-stage approach, starting with self-corrective action by UCBs before RBI escalates monitoring and restrictions.