Minimum CRAR norms for State and Central Cooperative Banks

RBI/2013-14/433 RPCD.RCB.BC.73/07.51.012/2013-14 January 7, 2014 The Chairman / Managing Director All State and Central Cooperative Banks Dear Sir / Madam, Application of Minimum Capital Adequacy Norms to State and Central Cooperative Banks (StCBs/CCBs) Please refer to the circular RPCD.CO.RF.BC.40/07.38.03/2007-08 dated December 4, 2007 wherein the State and Central Cooperative Banks had been advised to disclose the level of Capital to Risk weighted Assets Ratio (CRAR) as on March 31, 2008 and thereafter every year as ‘Notes on Accounts’ to their Balance Sheets. It was also advised that the roadmap for achieving the desired level of CRAR norms would be communicated in due course. 2. In the context of financial stability of the rural cooperative banking system and to strengthen the capital structure of State and Central Cooperative Banks (StCBs/CCBs), it is decided to prescribe a minimum CRAR for StCBs/CCBs. Accordingly, StCBs/CCBs are advised to achieve a minimum CRAR of 9% in a phased manner over a period of three years as indicated below: As on March 31, 2015             -           7% As on March 31, 2017             -           9% StCBs/CCBs are advised to maintain a mandated minimum CRAR of 7% on an ongoing basis with effect from March 31, 2015 and 9% with effect from March 31, 2017. 3. Further, it is decided that StCBs/CCBs be permitted to issue Long Term (Subordinated) Deposits (LTD) and Innovative Perpetual Debt Instruments (IPDI) to facilitate raising of capital funds (Tier I and Tier II) for the purpose of compliance with the prescribed CRAR norms,. The guidelines for issuance of LTD and IPDI are set out in ( Annex-I ) and ( Annex-II ) respectively. 4. The other contents of the circular RPCD.CO.RF.BC.40/07.38.03/2007-08 dated December 4, 2007 remain unchanged. 5. Please acknowledge receipt this circular to the concerned Regional Office within whose jurisdiction the StCB/CCB is located. Yours faithfully, (A. Udgata) Principal Chief General Manager Encl. As above ANNEX - I Guidelines to State/Central Co-operative Banks on Issuance of Long Term (Subordinated) Deposits Term of Issue 1. State/Central Co-operative Banks (StCBs/CCBs) may issue Long Term (Subordinated) Deposits (LTD) with the prior permission of the respective Registrar (RCS) granted in consultation with the Reserve Bank. LTD may be issued to members and non-members, including those outside the area of operations of the StCBs/CCBs   concerned. There is no prohibition on existing shareholders subscribing to LTD. The amounts raised through LTD, which comply with the following terms and conditions will be eligible to be treated as lower Tier II capital Maturity 2.1 LTD should have a minimum maturity of not less than 5 years. Limits 2.2 The outstanding amount of LTD, which is eligible to be reckoned as Tier II capital, will be limited to 50 percent of Tier I capital. The above limit will be based on the amount of Tier I capital after deduction of goodwill and other intangible assets but before the deduction of equity investments in subsidiaries, if any. Amount 2.3 The amount to be raised may be decided by the Board of Directors of banks. Seniority of Claims 2.4 LTD will be subordinated to the claims of depositors and other creditors but would rank senior to the claims of shareholders, including holders of preference shares (both Tier I & Tier II). Among investors of instruments included in lower Tier II, the claims shall rank pari passu with each other. 2.5 Options (a) LTD shall not be issued with a 'put option' or a 'step up' option. (b) The 'call option' will be permissible and may be exercised after 5 years with prior permission of the Reserve Bank. While considering the proposals received from banks for exercising the call option the Reserve Bank would, among other things, take into consideration the bank's CRAR position both at the time of exercise of the call option and after exercise of the call option. Redemption / Prepayment 2.6 Repayment of LTD at maturity shall be made only with the prior approval of the Reserve Bank of India (Rural Planning and Credit Department, Central Office) subject inter alia to the following conditions : (i) The bank's CRAR is above the minimum regulatory requirement prescribed by the Reserve Bank. (ii) The impact of such repayment does not result in bank's CRAR falling below or remaining below the minimum regulatory requirement prescribed by the Reserve Bank. Interest Rate 2.7 LTD may bear a fixed rate of interest or a floating rate of interest referenced to a market determined rupee interest benchmark rate. DICGC Cover 2.8 LTD will not be eligible for DICGC cover Progressive Discount 2.9 These deposits will be subjected to a progressive discount for capital adequacy purposes as under : Remaining Period of Maturity

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/433 · issued 07 Jan 2014. The plain-English explanation above is BankPulse’s own independent summary.

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