What changed
This master circular replaces the July 2015 version, consolidating all capital adequacy instructions for UCBs issued up to March 31, 2022. It updates the list of eligible Tier I capital components, including perpetual non-cumulative preference shares and perpetual debt instruments, with detailed annexes on risk weights and capital instruments.
What it means for you
UCBs must continue to maintain a 9% CRAR under Basel-I, with Tier II capital capped at 100% of Tier I. The circular clarifies which reserves qualify as free reserves and which do not, impacting how banks calculate their capital base. Banks need to ensure their capital instruments comply with the updated annexes to be counted in regulatory capital.
What you must do
- Review your bank's CRAR computation against the updated Tier I and Tier II definitions, especially free reserves exclusions.
- Ensure any perpetual non-cumulative preference shares or debt instruments issued meet the conditions in Annex-II and Annex-III.
- Update internal capital adequacy policies and return formats as per Annex-IV proforma.
- Train compliance teams on the revised risk weight schedule in Annex-I for accurate RWA calculation.
Who it affects
Primary (Urban) Co-operative Banks, UCB compliance and risk management teams, UCB board and senior management, RBI's Department of Regulation (Co-operative Banks)
What is the minimum CRAR for UCBs under this circular?
UCBs must maintain a minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9% on an ongoing basis, as per Basel-I framework.
Can Tier II capital exceed Tier I capital?
No, Tier II capital is limited to a maximum of 100% of total Tier I capital for CRAR compliance.
Which reserves are excluded from Tier I capital?
Reserves created for anticipated loan losses, fraud losses, depreciation, or other outside liabilities are excluded. For example, 'Bad and Doubtful Reserves' is excluded, while 'Building Fund' is eligible.