RBI scraps sick, weak tags for urban co-op banks/

Business Standard


The Reserve Bank of India (RBI) has scrapped the “weak” and “sick” tags for classifying financially unsound urban co-operative banks (UCBs) and will now classify them into four grades — I, II, III, IV.



It has also relaxed the norms for classification of the banks as “weak” (now Grade II and III banks).
Earlier, a UCB was classified “weak” if its capital to risk weighted assets ratio (CRAR) fell below 75 per cent of the minimum prescribed level; or its net non-performing assets (NPAs) amounted to 10 per cent or more but less than 15 per cent of net loans and advances as on March 31; or if it had shown net losses in operations for two of the last three consecutive financial years.


Now, a UCB is classified under Grade I (sound bank) if it complies with CRAR norms in the latest year; its net NPAs are less than 10 per cent of net loans and advances as on March 31; has a net profit for the financial year just ended; and has not defaulted in maintenance of cash reserve ratio (CRR)/statutory liquidity ratio (SLR) the previous year.


Banks will be classified Grade II, if they meet any one of the following norms: (i) CRAR is one per cent below the prescribed norm; or (ii) net NPAs are 10 per cent or more but below 15 per cent of net loans and advances as on March 31; or (iii) has incurred net losses for the financial year just ended; or (iv) has defaulted in maintenance of CRR/SLR the previous financial year.


Banks will be placed under Grade III if they meet any two of the following norms: (i) CRAR is below 75 per cent of the minimum prescribed level but 50 per cent or above; (ii) net NPAs are 10 per cent or more but less than 15 per cent of net loans and advances as on March 31; (iii) incurred net losses for two out of the last three consecutive financial years.


UCBs will be placed under Grade IV: (i) if their CRARs fall below 50 per cent of the minimum prescribed level; and (ii) net NPAs are 15 per cent or more of net loans and advances as on March 31; or (iii) they show net losses.