Link to RBI Circular : Circular on Supervisory Action Framework (SAF) dated 01.03.2012
MUMBAI: The Reserve Bank of India on Thursday directed the management of urban co-operative banks to keep their financial positions strong, failing which, it said, it could resort to tough measures, including cancelling their licences.
If a co-operative bank's deposit erodes beyond 25%, the central bank would issue a showcause notice for cancellation of the licence of the bank concerned, which it calls supervisory action. Other conditions are not specific.
The action "would increase in terms of severity as the financials deteriorate and could include restriction on pre-mature withdrawal of deposits, freeze on the level of advances/deposits, prohibition in
acceptance of deposits, issue of showcause for cancellation of banking licence etc," the RBI said in a statement.
Banks should shore up capital if it falls below the regulatory requirement of 9%.
"The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank," said the RBI. "Such corrective action should be prompt as any delay could be detrimental to the interest of the depositors and other stake holders of the bank," it said.
"The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency," said the RBI.
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," it said.
If the management failed to revive the bank, the RBI would initiate supervisory action, which would include active monitoring.
This would be followed by pre-emptive actions aimed at arresting further deterioration of the financial position of the bank concerned, the central bank said. "The extent and nature of supervisory action would depend on the level of capital adequacy and the extent of erosion in deposits, if any, in the bank," said the RBI..
courtesy / source : The Economic Times
.......................................................................................................
The Business Standard says:
The Reserve Bank of India (RBI) on Thursday revised the supervisory action framework for urban co-operative banks, saying in case of financial woes, banks must be the first to take corrective steps.
Earlier, RBI had initiated action against ailing urban co-operative banks, based on its assessment of their financial positions.
The central bank said an urban co-operative bank's management should initiate corrective action if its capital adequacy ratio fell below nine per cent. "The corrective action should include measures for augmenting capital, close monitoring of NPAs (non-performing assets) and its recovery, especially large NPAs, improving profitability by curtailing expenses and mobilising low-cost deposits, depending on the nature of the deficiency," RBI said in a notice.
Urban co-operative banks must prepare a time-bound action plan, and the progress must be monitored by their boards, RBI said.
In the absence of such action by the bank, RBI would take supervisory action in two stages. The central bank would first monitor the performance of the bank — if the capital adequacy ratio fell below six per cent or gross bad loans exceeded 10 per cent of the loan book or deposits were concentrated in the hands of a few depositors or the credit deposit ratio was more than 70 per cent.
"In the second stage, the supervisory action would be through pre-emptive action, aimed at arresting further deterioration in the bank's financial position," RBI said.
If such a bank's capital adequacy ratio falls below four per cent and its net worth turns negative, RBI would take appropriate steps, depending on the extent of the erosion in deposits. If the erosion in deposits is up to 10 per cent, the bank would have to explore the option of merging with another bank and would not be allowed to raise more deposits.
RBI would issue a show cause notice for cancelling the licence of a bank if the erosion in deposits exceeds 25 per cent.
.............................................................................................................
www.rupeetimes.com says:
The Reserve Bank of India has advised the Urban Co-operative banks to take good care of their financial heath. The apex bank has warned them, if they fail to do so, it can lead to the cancellation of their licenses. They must make sure that the deposits do not fall below 25%.
The RBI said, "The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank."
It also said, "The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency."
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," the RBI said.
....................................................................................................................
The Hindu Businessline says :
MUMBAI: The Reserve Bank of India on Thursday directed the management of urban co-operative banks to keep their financial positions strong, failing which, it said, it could resort to tough measures, including cancelling their licences.
If a co-operative bank's deposit erodes beyond 25%, the central bank would issue a showcause notice for cancellation of the licence of the bank concerned, which it calls supervisory action. Other conditions are not specific.
The action "would increase in terms of severity as the financials deteriorate and could include restriction on pre-mature withdrawal of deposits, freeze on the level of advances/deposits, prohibition in
acceptance of deposits, issue of showcause for cancellation of banking licence etc," the RBI said in a statement.
Banks should shore up capital if it falls below the regulatory requirement of 9%.
"The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank," said the RBI. "Such corrective action should be prompt as any delay could be detrimental to the interest of the depositors and other stake holders of the bank," it said.
"The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency," said the RBI.
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," it said.
If the management failed to revive the bank, the RBI would initiate supervisory action, which would include active monitoring.
This would be followed by pre-emptive actions aimed at arresting further deterioration of the financial position of the bank concerned, the central bank said. "The extent and nature of supervisory action would depend on the level of capital adequacy and the extent of erosion in deposits, if any, in the bank," said the RBI..
.......................................................................................................
The Business Standard says:
The Reserve Bank of India (RBI) on Thursday revised the supervisory action framework for urban co-operative banks, saying in case of financial woes, banks must be the first to take corrective steps.
Earlier, RBI had initiated action against ailing urban co-operative banks, based on its assessment of their financial positions.
The central bank said an urban co-operative bank's management should initiate corrective action if its capital adequacy ratio fell below nine per cent. "The corrective action should include measures for augmenting capital, close monitoring of NPAs (non-performing assets) and its recovery, especially large NPAs, improving profitability by curtailing expenses and mobilising low-cost deposits, depending on the nature of the deficiency," RBI said in a notice.
Urban co-operative banks must prepare a time-bound action plan, and the progress must be monitored by their boards, RBI said.
In the absence of such action by the bank, RBI would take supervisory action in two stages. The central bank would first monitor the performance of the bank — if the capital adequacy ratio fell below six per cent or gross bad loans exceeded 10 per cent of the loan book or deposits were concentrated in the hands of a few depositors or the credit deposit ratio was more than 70 per cent.
"In the second stage, the supervisory action would be through pre-emptive action, aimed at arresting further deterioration in the bank's financial position," RBI said.
If such a bank's capital adequacy ratio falls below four per cent and its net worth turns negative, RBI would take appropriate steps, depending on the extent of the erosion in deposits. If the erosion in deposits is up to 10 per cent, the bank would have to explore the option of merging with another bank and would not be allowed to raise more deposits.
RBI would issue a show cause notice for cancelling the licence of a bank if the erosion in deposits exceeds 25 per cent.
.............................................................................................................
www.rupeetimes.com says:
The Reserve Bank of India has advised the Urban Co-operative banks to take good care of their financial heath. The apex bank has warned them, if they fail to do so, it can lead to the cancellation of their licenses. They must make sure that the deposits do not fall below 25%.
The RBI said, "The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank."
It also said, "The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency."
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," the RBI said.
....................................................................................................................
The Hindu Businessline says :
Mumbai, March 2:
The Reserve Bank of India has unveiled a revised Supervisory Action
Framework for urban co-operative banks (UCBs) whereby in the initial
stage of deterioration in their financial position, self corrective
action by banks' management is envisaged.
If necessary steps are not taken to improve their financials or the
steps taken do not result in the required improvement in the financial
position of the UCB, the Reserve Bank will step in and initiate
supervisory actions as it deems necessary.
If the capital-to-risk-weighted assets ratio falls below 9 per cent or
there is deterioration in asset quality or decline in profits, liquidity
constraints and so on, the management of the UCB should take necessary
corrective actions, on its own, with a view to improve the financial
position of the bank, the RBI said in a notification.
The RBI would commence active monitoring of the performance of the bank if the self-corrective action by UCB does not work.
Under RBI supervision, the UCBs would, in the first stage, be required
to submit to the RBI an action plan for improving their performance in
the specific areas where there is a deterioration or cause of concern.
The second stage of the RBI's supervisory action would be in the form of
pre-emptive action aimed at arresting further deterioration in the
financial position of the bank.
In case of deposit erosion up to 10 per cent, the UCB will be advised to
explore options for merger with another bank. If the deposits erosion
is beyond 10 per cent and up to 25 per cent, the bank will be prohibited
from acceptance of fresh deposits and repayment of deposits.
A showcause notice will be issued for cancellation of the licence of the
bank in case of deposit erosion in excess of 25 per cent.
No comments:
Post a Comment