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The Reserve Bank of India (RBI) has come out with four-tiered regulatory framework for categorisation of Urban Co-operative Banks (UCBs). Apart from this, it has come out with norms pertaining to the net worth and capital adequacy of these banks. The four-tiered regulatory framework, based on size of deposits of the UCBs, will come into force with immediate effect. The extant regulatory framework classifies UCBs into two tiers -- Tier I and Tier II.

In a circular, the RBI said given the heterogeneity in the cooperative sector, a tiered regulatory framework is required. Such a framework is needed to balance the spirit of mutuality and co-operation more prevalent in banks of smaller sizes and those with limited area of operation vis-a-vis the growth ambitions of the large-sized UCBs and undertake more complex business activities.

It has been decided to adopt a four-tiered regulatory framework, as against the existing two-tiered framework, for categorisation of UCBs. Going forward, the categorisation may be used for differentiated regulatory prescriptions aimed at strengthening the financial soundness of the UCBs. The RBI has categorised all unit UCBs and salary earners' UCBs (irrespective of deposit size), and all other UCBs having deposits up to Rs 100 crore in Tier 1. In Tier 2, it has placed UCBs with deposits more than Rs 100 crore and up to Rs 1,000 crore. Tier 3 will cover banks with deposits more than Rs 1,000 crore and up to Rs 10,000 crore.