The Reserve Bank of India will issue a discussion paper on capital raising avenues for urban co-operative banks (UCBs).

The aim is to provide more flexibility and avenues for UCBs to raise capital. It will also help them to fund their transition to small finance banks (SFBs), if they so desire. The RBI allows  UCBs to transition into SFBs if they have Rs 200 crore in capital, a 15% capital to risk (weighted) assets ratio (CRAR) and proper governance standards.

In 2022, the RBI had issued the initial set of guidelines on share capital and securities to align the UCBs with the Banking Regulation (Amendment) Act, 2020. However, these guidelines did not address the newer capital-related provisions, including the issuance of special shares and shares at a premium.

An expert panel on UCBs, headed by former deputy governor N S Vishwanathan in 2021, outlined the capital requirements for cooperative banks. To implement the committee’s recommendations, the RBI had appointed a working group to operationalise the capital-raising provisions.

Based on the group’s findings, the RBI will issue a discussion paper on capital-raising avenues for UCBs to seek feedback from stakeholders.