·  RBI releases draft master circular proposing unified ECBA norms for Urban Co-operative Banks (UCBs), replacing the older FSWM framework.

·  New criteria include minimum capital adequacy, NPAs under 3%, profit in last two years, and no default in reserve requirements.

·  Tiered classification of UCBs retained, with additional conditions for registration under the Second Schedule of the RBI Act.

The Reserve Bank of India (RBI) on Monday put out a draft master circular to re-engineer the current regulatory framework for Urban Co-operative Banks (UCBs). The new proposal introduces a harmonised set of eligibility standards called the Eligibility Criteria for Business Authorisations (ECBA) in place of the existing "Financially Sound and Well Managed (FSWM)" structure.

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According to the proposed guidelines under ECBA, UCBs will have to meet a number of financial and operating criteria in order to be deemed fully compliant. These are:

• Having the minimum capital adequacy ratio,

• Having net non-performing assets (NPAs) at or below 3%,

• Having reported net profits in the last two financial years, and

• Having no defaults in reserve requirements.

This single framework is meant to ease the compliance processes and make assessments uniform for all UCBs.

The RBI also reasserted tiered categorization of UCBs according to their size of deposits:

• Tier 1: All unit UCBs and salary earners' UCBs (irrespective of deposit amount), as well as all UCBs with deposits up to Rs 100 crore.

• Tier 2: UCBs with deposits between Rs 100 crore and Rs 1,000 crore.

• Tier 3: Deposits between Rs 1,000 crore and Rs 10,000 crore.

• Tier 4: Deposits above Rs 10,000 crore.

These cooperative banks mainly serve small borrowers, local enterprises, and the urban middle class, many of whom have no easy access to large commercial banks.

Also, to be eligible for listing under the Second Schedule of the RBI Act, 1934, a UCB needs to have at least Rs 1,000 crore as deposit base for two consecutive years and maintain a capital adequacy ratio 3% above the minimum prescribed norm.

The RBI sought public comments on the draft circular, marking a major regulatory shift for the urban cooperative banking industry.