RBI Unveils 4-tiered Regulatory Framework for Urban Cooperative Banks

A four-tiered regulatory framework for categorization of the Urban Cooperative Banks (UCBs) was recently released by the Reserve Bank of India (RBI). It had also announced norms concerning the net worth and capital adequacy of these banks.

Why is the four-tiered framework needed?

The previous regulatory framework classified USCs into Tier I and Tier II. The new four-tiered framework was announced to ensure the effective regulation of the cooperative banking sector, which is heterogeneous in nature. This regulatory framework, based on the size of the deposits in the UCBs, seeks to balance the spirit of mutuality and cooperation found in smaller banks and those having limited areas of operations vis-à-vis the growth ambitions of the larger UCBs and those involved in more complex business activities. The categorization of the UCBs into four tiers ensures differentiated regulations that will strengthen the financial soundness of the UCBs.

Four-Tiered Framework


  • Tier I includes all unit UCBs and salary earners’ UCBs (regardless of deposit size) and all other UCBs having deposits up to Rs.100 crore.
  • Tier 2 covers UCBs having deposits more than Rs.100 crore and up to Rs.1,000 crore.
  • Tier 3 includes all banks having deposits higher than Rs.1,000 crore and up to Rs.10,000 crore.
  • Tier 4 has all UCBs having deposits higher than Rs.10,000 crore.

Minimum Net Worth

  • The minimum net worth of Tier I UCB operating in a single district must be Rs.2 crore. For other UCBs in Tier 1, 2 and 3, the minimum net worth should be Rs.5 crore.
  • Those UCBs that do not meet the revised minimum net worth are required to increase their net worth to Rs.2 crore or Rs.5 crore in a phased manner.

Minimum capital to risk weighted assets ratio

  • The capital-to-risk weighted asset ratio (CRAR), also known as the Capital Adequacy Ratio, is the ratio of a bank’s capital to its risk.
  • The RBI prescribed the minimum capital-to-risk weighted asset ratio that needs to be maintained by the UCBs.
  • The Tier I UCBs are required to maintain a minimum capital to risk weighted assets ratio of 9 per cent of the Risk Weighted Assets on the on-going basis. Risk-weighted asset is a bank’s assets weighted according to the risk to determine the Capital Adequacy Ratio.
  • Other UCBs, from Tier 2 to 4, are required to maintain a minimum capital to risk weighted assets of 12 per cent of Risk Weighted Assets on the on-going basis.




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