Urban co-operative banks not interested to become SFB: RBI's Satish Marathe

Urban co-operative banks (UCBs) are displaying reluctance towards converting into small finance banks (SFBs) due to anticipated operational changes, with only one UCB applying for conversion, according to Satish Marathe, a founder member of Sahakar Bharati and a member of the RBI’s central board. \r

The RBI issued guidelines in 2018 for the voluntary transition to SFBs, requiring UCBs to meet criteria such as a minimum capital of Rs 50 crore and a capital-to-risk asset ratio of 9 percent or higher within 18 months. However, Marathe highlighted concerns that SFB conversion could lead to loss of control for the current board as investors may take over, potentially altering the bank's objectives. \r

Despite the scheme, only Shivalik Mercantile Co-operative Bank in Uttar Pradesh has converted into an SFB. While the RBI initially allowed UCBs to convert due to supervision concerns, the central government's ordinance in June 2020 placed all urban and multi-state co-operative banks under direct RBI supervision. \r

The regulator has also stipulated that UCBs must have an initial net worth of Rs 100 crore, increasing to Rs 200 crore within five years for voluntary conversion into SFBs, and released guidelines for SFBs to convert into universal banks.