Capital Adequacy Prudential Norms for Primary Urban Co-operative Banks

RBI/2025-26/09
DOR.CAP.REC.03/09.18.201/2025-26
April 01, 2025

All Primary (Urban) Co-operative Banks

Dear Sir / Madam,

Master Circular - Prudential Norms on Capital Adequacy - Primary (Urban) Co-operative Banks (UCBs)

Please refer to our Master Circular DOR.CAP.REC.5/09.18.201/2024-25 dated April 01, 2024 on the captioned subject.

2. The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued up to March 31, 2025 as listed in the Appendix.

Yours faithfully

(Usha Janakiraman)
Chief General Manager-in-Charge

Encl: As above

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Master Circular
Prudential Norms on Capital Adequacy - Primary (Urban) Co-operative Banks (UCBs)

Contents

Prudential Norms on Capital Adequacy – Primary (Urban) Co-operative Banks (UCBs)

1. Introduction
Capital acts as a buffer in times of crisis or poor performance by a bank. Sufficiency of capital also instills depositors' confidence. As such, adequacy of capital is one of the pre-conditions for licensing of a new bank as well as its continuance in business.

2. Statutory Requirements
In terms of the provisions contained in Section 11 of Banking Regulation Act (AACS), no co-operative bank shall commence or carry on banking business unless the aggregate value of its paid-up capital and reserves is not less than one lakh of rupees. In addition, under Section 22(3)(d) of the above Act, the Reserve Bank prescribes the minimum entry point capital (entry point norms) from time to time, for setting-up of a new Primary (Urban) Cooperative Bank.

3. Net Worth
UCBs shall have minimum net worth as under:

• Tier 1 UCBs operating in a single district shall have minimum net worth of ₹2 crore.
• All other UCBs (of all tiers) shall have minimum net worth of ₹5 crore.

UCBs which currently do not meet the minimum net worth requirement, as above, shall achieve the minimum net worth of ₹2 crore or ₹5 crore (as applicable) in a phased manner. Such UCBs shall achieve at least 50 per cent of the applicable minimum net worth on or before March 31, 2026 and the entire stipulated minimum net worth on or before March 31, 2028.

The computation of “Net worth” in this context is provided in Annex 1.

4. Capital Adequacy Norms
UCBs shall maintain minimum Capital to Risk Weighted Assets Ratio (CRAR) as under:

• Tier 1 UCBs shall maintain, as hitherto, a minimum CRAR of 9 per cent of Risk Weighted Assets (RWAs) on an ongoing basis.
• Tier 2 to 4 UCBs shall maintain a minimum CRAR of 12 per cent of RWAs on an ongoing basis.

UCBs in Tier 2 to 4, which do not currently meet the revised CRAR of 12 per cent of RWAs, shall achieve the same in a phased manner. Such UCBs shall achieve the CRAR of at least 10 per cent by March 31, 2024, 11 per cent by March 31, 2025, and 12 per cent by March 31, 2026.

The computation of CRAR will be as under:
The capital funds (eligible total capital) for capital adequacy purposes shall consist of Tier I and Tier II capital as defined below. The total of Tier II capital shall be limited to a maximum of 100 per cent of total Tier I capital for the purpose of compliance with CRAR norms.

Risk weights for different categories of exposures of banks are outlined in Annex 2.

4.1 Tier I Capital
Tier I shall comprise the following:

• (i) Paid-up share capital collected from regular members having voting rights.
• (ii) Contributions received from associate / nominal members where the bye- laws permit allotment of shares to them and provided there are restrictions on withdrawal of such shares, as applicable to regular members.
• (iii) Contribution / non-refundable admission fees collected from the nominal and associate members which is held separately as 'reserves' under an appropriate head since these are not refundable.
• (iv) Perpetual Non-Cumulative Preference Shares (PNCPS) which comply with the regulatory requirements as specified in Annex 3.
• (v) Free Reserves as per the audited accounts. Reserves, if any, created to meet outside liabilities should not be included in the Tier I Capital. Free reserves shall exclude all reserves / provisions which are created to meet anticipated loan losses, losses on account of fraud etc., depreciation in investments and other assets and other outside liabilities. For example, the amount held under the head “Building Fund” will be treated as part of free reserve. Similarly, “Bad and Doubtful Debt Reserve” complying with all the terms and instructions issued vide circular DOR.CAP.REC.No.27/09.18.201/2024-25 dated August 02, 2024, shall also be treated as free reserves.
• (vi) Capital Reserves representing surplus arising out of sale proceeds of assets.
• (vii) Perpetual Debt Instruments (PDIs) which comply with the regulatory requirements as specified in Annex 4.
• (viii) Any surplus (net) in Profit and Loss Account i.e., balance after appropriation towards dividend payable, education fund, other funds whose utilisation is defined, asset loss, if any, etc.
• (ix) Outstanding amount in Special Reserve created under Section 36(1) (viii) of the Income Tax Act, 1961.
• (x) Revaluation reserves, arising out of change in the carrying amount of a bank’s property consequent upon its revaluation, may be reckoned as Tier I capital at a discount of 55 per cent, subject to meeting the following conditions:
  • the bank is able to sell the property readily at its own will and there is no legal impediment in selling the property;
  • the revaluation reserves are presented/disclosed separately under “Reserve Fund and Other Reserves” in the Balance Sheet;
  • revaluations are realistic, in accordance with applicable accounting standards;
  • valuations are obtained, from two independent valuers, at least once in every three years;
  • where the value of the property has been substantially impaired by any event, these are to be immediately revalued and appropriately factored into capital adequacy computations;
  • the external auditor(s) of the bank have not expressed a qualified opinion on the revaluation of the property;
  • the instructions on valuation of properties and other specific requirements as mentioned in Annex 1 (Guidelines on Valuation of Properties – Empanelment of Valuers) to the Master Circular DOR.CRE.REC.No.27/07.10.002/2023-24 dated July 25, 2023 on Management of Advances – UCBs, as amended from time to time, are strictly adhered to.