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The Reserve Bank of India (RBI) has proposed changes in rules for fundraising by primary (urban) co-operative banks.

On Wednesday, the central bank released a draft circular for issue and regulation of share capital and securities of primary (urban) co-operative banks.

"UCBs are permitted to raise equity share capital, as hitherto, by way of issue of equity shares to persons within their area of operation enrolled as members, in accordance with the provisions of their bye-laws, and issue of additional equity shares to the existing members," it said.

The RBI has proposed that any refund of share capital to members, or their nominees, should be subject to the certain conditions -- the bank's capital adequacy ratio is 9 per cent or above, both as per the latest audited financial statements and the last CRAR as assessed by the RBI during statutory inspection.

Such refund should not result in the bank's capital adequacy falling below regulatory minimum of 9 per cent.

The RBI has directed cooperative banks to ensure their investors are educated on the risk characteristics of regulatory capital requirements.

It has also asked cooperative banks to have a specific sign-off from the investors to ensure they have understood the features and risks of the instruments.

The urban co-operative banks have been asked to not benchmark floating rate instruments to the fixed deposit rate.