What changed
RBI has prescribed a phased minimum CRAR of 7% by March 31, 2015, and 9% by March 31, 2017, for StCBs/CCBs. Previously, only disclosure of CRAR in balance sheet notes was required. Banks are now permitted to issue Long Term (Subordinated) Deposits and Innovative Perpetual Debt Instruments to raise Tier I and Tier II capital.
What it means for you
Cooperative banks must strengthen their capital base to meet the 9% CRAR target, enhancing financial stability. The new instruments provide flexibility to raise capital from members and non-members, but require prior approvals from RCS and RBI. Non-compliance could lead to regulatory restrictions.
What you must do
- Plan capital raising strategies to meet 7% CRAR by March 31, 2015, and 9% by March 31, 2017.
- For LTD, seek prior permission from RCS in consultation with RBI before issuance. For IPDI, follow terms in Annex II (no explicit prior permission requirement stated).
- Ensure LTD maturity is at least 5 years and outstanding LTD does not exceed 50% of Tier I capital (after deduction of goodwill and other intangible assets but before deduction of equity investments in subsidiaries).
- Obtain RBI approval for any call option exercise or redemption of LTD.
- Disclose CRAR in 'Notes on Accounts' to balance sheets annually.
Who it affects
State Cooperative Banks (StCBs), Central Cooperative Banks (CCBs), Registrars of Cooperative Societies (RCS)
What is the deadline for achieving the 9% CRAR?
StCBs/CCBs must achieve 9% CRAR by March 31, 2017, with an interim target of 7% by March 31, 2015.
Can LTD be issued to non-members?
Yes, LTD can be issued to members and non-members, including those outside the bank's area of operations, with prior permission from RCS and RBI.
What happens if a bank fails to meet the CRAR targets?
The circular does not specify penalties, but non-compliance may affect financial stability and invite regulatory scrutiny. Banks should proactively plan capital augmentation.