Capital Adequacy Norms for Urban Co-operative Banks (UCBs)
The Reserve Bank of India has outlined prudential norms for UCBs to ensure their capital adequacy.
Statutory Requirements: UCBs must comply with the capital adequacy norms as per the Banking Regulation Act, 1949.
Capital Funds: Tier I Capital includes share capital, disclosed reserves, and surplus. Tier II Capital includes undisclosed reserves, revaluation reserves, general provisions, and loss reserves, investment fluctuation reserve, hybrid debt capital instruments, and subordinated debt.
Capital Adequacy Ratio (CAR): UCBs must maintain a minimum CAR of 9% of their risk-weighted assets.
Risk Weights: Assets and off-balance sheet items are assigned risk weights for computing CAR. The risk weights vary based on the type of asset or instrument.
Market Risk: UCBs must maintain additional capital for market risk, including foreign exchange and interest rate-related contracts.
Returns: UCBs must submit returns to the RBI, including the Capital Adequacy Return and the Risk Assessment Return.
Annex-1: Provides the prudential norms for risk weights for computation of CAR, including domestic operations and overseas operations of banks.
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Download: Master Circular- Prudential Norms on Capital Adequacy – UCBs