Supervisory Action Framework for Primary (Urban) Co-operative Banks (UCBs)
UR
- Applies toUrban co-operative banks
- StatusSuperseded
- Replaced byPrompt Corrective Action (PCA) Framework for Primary (Urban) Co-operative Banks (UCBs) · superseded from 1 April 2025 by RBI’s RBI/2024-25/55
- IssuedJan 06, 2020
- Amendmentsnone tracked
- Length32 points in 4 sections · 3 min read
The four dates on this rule
- PublishedJan 06, 2020The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyJan 06, 2020The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNoneIt starts to apply on the day it was published.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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31 of the 32 points name no product and bind every product. All products.
Numbers to remember
| 6 per cent | A bank may enter the framework when net bad loans pass 6 per cent of net advances. RBI Para 2.1 |
| 100 per cent | Fresh loans carrying risk weights above 100 per cent may be restricted. RBI Para 2.1 |
| 9 per cent | A capital ratio under 9 per cent can place the bank under the framework. RBI Para 2.3 |
| 12 months | The board may have to plan a return to 9 per cent capital within 12 months. RBI Para 2.3 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Must know
1. The bad loan trigger
A bank may enter the framework when net bad loans pass 6 per cent of net advances.
BankPulse example. A co-operative bank has net advances of 500 crore rupees. Its net bad loans are 35 crore rupees, which is 7 per cent. That exceeds 6 per cent, so the bank can be placed in the framework.
2. Plan to cut bad loans
RBI may ask the board to approve a plan bringing net bad loans below 6 per cent.
3. Risky loans restricted
Fresh loans carrying risk weights above 100 per cent may be restricted.
4. Dividend fully barred
While losses persist, dividends and donations may be prohibited outright.
5. The capital trigger
A capital ratio under 9 per cent can place the bank under the framework.
6. Twelve months to repair
The board may have to plan a return to 9 per cent capital within 12 months.
7. Borrowing restricted
Fresh borrowing may be barred except to cover temporary liquidity gaps.
8. Reported numbers count too
RBI can also act on reported or audited figures and review them after inspection.
Do it
1. Costs must fall
RBI may direct steps that cut interest costs and running expenses.
2. Before the board
The circular must be placed before the bank's board at its next meeting.
Background
1. Who is covered
This framework is addressed to every primary urban co-operative bank in India.
2. What it replaces
It replaces the earlier 2014 version of the framework with a tighter one.
3. Why it was revised
The framework was revised for faster resolution of co-operative banks under financial stress.
4. Three things watched
RBI tracks asset quality, profitability and capital of every urban co-operative bank.
5. Action on a trigger
Crossing a stated threshold can bring corrective steps by the bank or supervisory action by RBI.
6. The board reviews progress
The board may have to review the plan's progress every quarter or every month.
7. Dividend needs permission
The bank may need RBI's prior approval to declare a dividend or make a donation.
8. Lending to weak sectors cut
RBI may curtail new credit to sectors carrying a high share of bad loans and defaults.
9. Smaller exposure limits
Limits on exposure for fresh loans and advances may be reduced.
10. The loss trigger
Losses in two straight financial years, or accumulated losses on the balance sheet, can pull a bank in.
11. A plan to restore profit
The board may have to approve a plan restoring profit and wiping out accumulated losses.
12. Spending cap
Capital spending beyond a set limit may need RBI's prior approval.
13. Merger on the table
RBI may seek a board proposal to merge the bank or convert it into a credit society.
14. Balance sheet frozen
Growth in the size of the balance sheet may be restricted.
15. Lending near stop
New loans may be banned unless fully secured by term deposits or small savings instruments.
16. Deposits capped
The bank may be stopped from growing its deposits at all.
17. The last resort
RBI may impose all-inclusive directions under section 35A of the Banking Regulation Act.
18. The licence question
A show cause notice for cancelling the banking licence may follow.
19. When depositors come first
These steps arrive when normal functioning stops serving the bank's depositors and the public.
20. Inspection decides
Action normally follows the bank's position as assessed in RBI's statutory inspection.
21. RBI keeps a free hand
RBI can still act on other stress indicators or on serious governance issues.
22. In force at once
The revised framework took effect immediately, and earlier actions were reviewed under it.