Urban co-operative banks (UCBs) are not interested in converting to Small Finance Banks (SFBs) as it will eventually lead to changes in their operations. As a result, none except one has applied for conversion, said Satish Marathe, founder member of Sahakar Bharati and member of the Reserve Bank of India’s (RBI) central board.
In 2018, the RBI issued guidelines for voluntary transition into SFBs. According to the guidelines, UCBs must have a minimum capital worth Rs 50 crore and may be granted facilities similar to SFBs in the private sector. They must also have a capital to risk (weighted) assets ratio of 9 per cent or above to be eligible to apply for transition. UCBs will get 18 months to comply with the requirements under the scheme.
Furthermore, these UCBs will also have to comply with the latest guidelines for on-tap licensing of SFBs in the private sector, under which SFBs will have to maintain a minimum net worth of Rs 100 crore from the date of commencement of business.
Satish Marathe told Business Standard, “No urban co-operative bank has applied to the RBI to convert itself into an SFB. Once a co-operative bank is converted into an SFB, over a period of time, it will have to get itself listed and investors with deep pockets are sure to take over the SFB, and the present board would lose its control.”
Despite the voluntary transition scheme announced in late September 2018, so far only Uttar Pradesh-based Shivalik Mercantile Co-operative Bank has converted into an SFB. It started its operations on April 26, 2021.
The banking regulator allowed UCBs to convert into SFBs because of the multi-state presence of certain banks. Also, these were not under the direct supervision of the RBI, causing concern. However, in June 2020, the central government approved an ordinance which brought all urban and multi-state co-operative banks directly under the RBI.
However, since the conversion will not boost the work or culture of these UCBs, they prefer to maintain the status quo.
“Besides, once it changes hands, the SFB will neither work nor nurture the objectives for which a co-operative was formed by its founders. Hence, co-operators are not interested in converting UCBs into SFBs,” Marathe added.
In addition, the banking regulator recently said that for UCBs that are planning to change voluntarily into SFBs, the initial requirement of net worth is Rs 100 crore, and it will have to be increased to Rs 200 crore within five years.
Recently, the banking regulator also released guidelines on the voluntary conversion of SFBs into universal banks.
First Published: May 23 2024 | 5:44 PM IST