To improve efficiency and transparency in the banking system Reserve Bank of India (RBI) has mentioned in its circular that, those Urban Cooperative Banks (UCB’s) who meet the specified criteria by the end of the present financial year or subsequent financial year need to implement a system-based asset classification within 6 months from the end of the financial year concerned. Here system-based asset classification refers to a computerized system of asset classification which can be either upgrading or downgrading. All Urban Cooperative Banks (UCB’s) who have a total asset of more than Rs 2000 crores as on March 31, 2020, should implement a system-based asset classification that can be either downgrading as well as upgrading. These Urban Cooperative Banks came into the picture in September 2019 when RBI put strict restrictions on Punjab and Maharashtra Cooperative (PMC) Bank.
All Urban Cooperative Banks (UCB’s) who have self-assessed themselves as being under Level III or Level IV on Comprehensive Cybersecurity Framework and who are having a total asset of more than Rs 1000 crores but less than Rs 2000 crores as on March 31, 2020, are required to implement system-based asset classification from September 30, 2021. RBI further said that to maintain smooth implementation of the system concerned Urban Cooperative Banks (USB’s) must conduct parallel run and also assess the results for the correctness of asset classification which shall be in accordance with RBI instructions so as to make sure they are the ready application of system-based asset classification from the said date.And even Urban Cooperative Banks not meeting the criteria can also voluntarily implement system-based asset classification.
In order to reduce concentration risk which is arising out of large loans, RBI in March had lowered single borrower for urban cooperative banks to 15% of tier I capital and reduced the group exposure limit for urban cooperative banks 25% of tier I capital.
