What changed
Minimum net worth requirements are now differentiated: ₹2 crore for Tier-1 single-district UCBs and ₹5 crore for all other tiers. UCBs below these thresholds must reach 50% by March 2026 and full compliance by March 2028. CRAR for Tier-2 to Tier-4 UCBs is raised from 9% to 12%, with interim targets of 10% by March 2024, 11% by March 2025, and 12% by March 2026. Revaluation reserves can now be included in Tier-1 capital at a 55% discount, subject to strict conditions.
What it means for you
UCBs, especially smaller ones, face tighter capital requirements that will pressure them to raise funds or merge. The phased timelines give breathing room but demand proactive capital planning. Allowing revaluation reserves in Tier-1 capital offers a cushion, but the 55% discount and conditions limit its benefit. Banks must monitor their net worth and CRAR closely to avoid regulatory action.
What you must do
- Assess your UCB's current net worth against the ₹2 crore or ₹5 crore threshold and plan phased compliance by March 2028.
- Calculate your CRAR and ensure Tier-2 to Tier-4 UCBs meet the 10% target by March 31, 2024, 11% by March 31, 2025, and 12% by March 31, 2026.
- Evaluate revaluation reserves for Tier-1 capital inclusion, ensuring compliance with valuation, disclosure, and auditor conditions.
- Update internal capital adequacy policies and reporting systems to reflect the new net worth and CRAR requirements from April 1, 2023.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Tier-1 UCBs operating in a single district, Tier-2 to Tier-4 UCBs, UCBs currently below minimum net worth or CRAR thresholds
What is the deadline for UCBs to meet the new minimum net worth?
UCBs must achieve at least 50% of the applicable minimum net worth by March 31, 2026, and the full amount by March 31, 2028.
Can revaluation reserves be used to meet Tier-1 capital requirements?
Yes, but only at a 55% discount and subject to conditions like independent valuations every three years, no legal impediment to sale, and no qualified audit opinion on revaluation.
What is the CRAR requirement for Tier-2 to Tier-4 UCBs?
They must maintain a minimum CRAR of 12% of risk-weighted assets, with phased targets: 10% by March 31, 2024, 11% by March 31, 2025, and 12% by March 31, 2026.