Urban Co-operative Banking: Licensing, Prudential Norms and Supervision
Urban Co-operative Banking tests how a primary (urban) co-operative bank - a UCB - is created, licensed, governed and supervised. Items in this domain blend co-operative law with RBI's prudential regulation, so expect questions on registration versus licensing, board and CEO fitness, capital adequacy, priority-sector lending, asset classification and deposit insurance.
Two permissions, two authorities
A UCB is first registered as a co-operative society - under the State Co-operative Societies Act, or the Multi-State Co-operative Societies Act, 2002 if it operates in more than one state - and only then applies for a banking licence under Section 22 of the Banking Regulation Act, 1949. Registrar registration is not permission to accept demand deposits and lend. After the Banking Regulation (Amendment) Act, 2020, RBI's reach over UCBs extends to management, issue of capital, audit and amalgamation, and RBI can supersede a board.
Core prudential numbers to carry into the exam
- Minimum CRAR 9% of risk-weighted assets.
- SLR 18% of NDTL; scheduled UCBs also maintain CRR with RBI.
- Priority sector target: 75% of ANBC - far above the 40% norm applied to commercial banks.
- A loan is an NPA when overdue 90 days; sub-standard up to 12 months, then doubtful, then loss.
- DICGC insures deposits up to ₹5 lakh per depositor, per bank.
Worked example
A UCB's ANBC is ₹200 crore and its priority-sector lending is ₹135 crore. Target = 75% × ₹200 crore = ₹150 crore, so the shortfall is ₹15 crore. The bank must park the shortfall in permitted instruments (RIDF, or funds with SIDBI/NABARD) or it fails the PSL review - even if its CRAR is comfortable. Healthy capital does not cure a PSL shortfall.
Traps that cost marks
Mixing up Registrar approval with RBI licensing; applying the 40% commercial-bank PSL target to a UCB; quoting Basel's 8% instead of the 9% floor; and treating deposit cover as per branch rather than per depositor.