REGULATION OF UCB (Syllabus: GS Paper 3 - Economy)

Context: Reserve Bank of India (RBI) Governor said while the Urban Cooperative Bank (UCB) sector showed improved financial performance at an aggregate level in the recent times, concerns and vulnerabilities were seen for certain individual entities.

• He highlighted the need for the UCBs to strengthen financial and operational resilience to contribute to financial and banking sector stability.
• Recently, the Reserve Bank has notified four key measures, including giving them two years more to meet the priority sector lending targets.

4 key measures for UCBs

• New branches: UCBs can now open new branches up to 10 per cent (maximum 5 branches) of the number of branches in the previous financial year without prior approval of RBI in their approved area of operation.
• UCBs have to get the policy approved by their board and comply with the Financially Sound and Well Managed (FSWM) Norms.
• One-Time Settlement: UCBs can do One-Time Settlement at par with commercial banks.
• Now co-operative banks through board-approved policies may provide process for technical write-off as well as settlement with borrowers.
• PSL Targets: The RBI has decided to extend the timeline for UCBs to achieve Priority Sector Lending (PSL) targets by two years i.e. up to March 31, 2026.
• The deadline to achieve PSL target of 60 per cent, which was March 31, 2023, has also been extended to March 31, 2024. 
• The excess deposits, if any, after clearing the shortfall of PSL during FY 2022-23 will also be refunded to the UCB.