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Second Quarter Review of Monetary Policy click here



Second Quarter Review of Monetary Policy 2010-11
-Announced on the 2nd November 2010



Developmental and Regulatory Policies

IV. Credit Delivery and Financial Inclusion

Urban Co-operative Banks

Licenses for Setting up new Urban Co-operative Banks

87. As indicated in the Monetary Policy Statement of April 2010, an Expert Committee (Chairman: Shri Y. H. Malegam) was constituted in October 2010 with representations from all stakeholders for studying the advisability of granting licenses for setting up new urban co-operative banks (UCBs) under Section 22 of the Banking Regulation Act, 1949 [as applicable to co-operative socieities (AACS)]. The Committee is expected to submit its report in six months. The Committee will also look into the feasibility of an umbrella organisation for the UCB sector.

Extension of Area of Operation of UCBs

88. In order to further facilitate the growth of well managed and financially sound UCBs, it is proposed:

to withdraw the existing restrictions on granting multi-state status and extension of area of operation beyond the state of registration for such UCBs having a minimum net worth of `50 crore;

to allow such UCBs which have acquired weak banks in other state(s) to extend the area of operation to the entire state of registration of the target bank provided they have minimum net worth of `50 crore; and

to allow Tier II UCBs registered or deemed to be registered under the Multi-State Co-operative Societies Act, 2002 to extend area of operation to the entire state of original registration.

89. Detailed guidelines in this regard will be issued separately.

Liberalisation of Branch Licensing Policy for UCBs

90. In order to further liberalise the branch licensing policy for urban co-operative banks (UCBs), it is proposed:

to allow well managed and financially sound UCBs to open branches and extension counters within their existing/approved area of operation, beyond the current ceiling of 10 per cent as long as they have sufficient headroom capital for each branch. 91. Detailed guidelines in this regard will be issued separately.

Business Correspondents/Business Facilitator Model for UCBs

92. With a view to expanding the outreach of the UCBs, thereby furthering the objective of financial inclusion, it is proposed:

to allow well managed and financially sound UCBs to engage business correspondents (BCs)/business facilitators (BFs) using information and communication technology (ICT) solutions. Enhancement of Limits on Unsecured Loans and Advances Granted by UCBs

93. Keeping in view the growth in business of the UCBs over the years, it is proposed:

to enhance the existing limits on individual unsecured loans and advances extended by the UCBs, which are complying with the regulatory capital to risk-weighted assets ratio (CRAR) of 9 per cent, subject to the overall ceiling of 10 per cent of total assets.

94. Detailed guidelines in this regard will be issued separately.



Exposure of UCBs to Housing Loans

95. At present, UCBs can provide housing, real estate and commercial real estate loans up to 15 per cent of their deposit resources as on March 31 of the previous year. It has now been decided to link housing, real estate and commercial real estate loans of UCBs to their total assets instead of deposits. Accordingly, it is proposed:

to replace the existing limit of 15 per cent of deposits for housing, real estate and commercial real estate loans by a limit of 10 per cent of total assets; and

an additional limit of 5 per cent of total assets will be available for housing loans granted to individuals by the UCBs for purchase/construction of dwelling units up to `10 lakh.

Exemption from Share Linking to Borrowing Norm

96. It is mandatory for borrowers of UCBs to subscribe to the shares of the bank to the extent of 2.5-5.0 per cent of their borrowings. In order to provide flexibility to UCBs, which are already well capitalised to extend loans without adding to capital, it is proposed:

to exempt UCBs which maintain a minimum CRAR of 12 per cent on a continuous basis from the mandatory share linking norms. Access to INFINET Membership, Current/SGL Accounts with the Reserve Bank and RTGS Membership for UCBs

97. In order to enable UCBs to serve their customers better, it is proposed:

to allow all licensed UCBs (other than those under all inclusive directions) the facility of Indian financial network (INFINET) membership, current and subsidiary general ledger (SGL) accounts with the Reserve Bank; and

to allow real time gross settlement (RTGS) membership to only well managed and financially sound UCBs having a minimum net worth of `25 crore.

Customer Service

98. Pursuant to the announcement made in the Monetary Policy Statement of April 2010, a Committee on Customer Service (Chairman: Shri M. Damodaran) was constituted to look into banking services rendered to retail and small customers, including pensioners. The Committee will also look into the system of grievance redressal mechanism prevalent in banks its structure and efficacy and suggest measures for expeditious resolution of complaints. The Committee will also examine the international experiences in this regard. A need for conducting on-site inspection and rating banks on customer service will be examined based on the outcome of the report of the Committee. The Committee is expected to submit its report by end-January 2011.

99. As indicated in the Monetary Policy Statement of April 2010, banks were advised in May 2010 to devote exclusive time in a Board meeting once in every six months to review and deliberate on customer service.

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