Satish Marathe states that Urban co-operative banks are not interested in becoming SFBs

Urban co-operative banks (UCBs) are showing little interest in converting to Small Finance Banks (SFBs) due to concerns about changes in their operations. According to Satish Marathe, founder member of Sahakar Bharati and member of the Reserve Bank of India’s (RBI) central board, only one UCB has applied for conversion, while others are hesitant.

The RBI issued guidelines in 2018 for UCBs to voluntarily transition into SFBs, requiring a minimum capital of Rs 50 crore and a capital to risk assets ratio of 9% or above. UCBs will have 18 months to comply with these requirements. Additionally, they must adhere to the latest guidelines for on-tap licensing of SFBs in the private sector, maintaining a minimum net worth of Rs 100 crore.

Marathe expressed concerns that once a UCB converts to an SFB, it may lose control to investors with deep pockets, leading to a change in the bank’s objectives and culture. Despite the voluntary transition scheme introduced in 2018, only one UCB, Shivalik Mercantile Co-operative Bank in Uttar Pradesh, has converted to an SFB so far.

The RBI allowed UCBs to convert to SFBs due to concerns about their multi-state presence and lack of direct supervision. However, the recent ordinance bringing all urban and multi-state co-operative banks under RBI supervision has not convinced UCBs to make the switch.

Marathe emphasized that the conversion may not benefit the UCBs in terms of work or culture, leading them to prefer maintaining the status quo. The RBI also stated that UCBs transitioning to SFBs must increase their net worth to Rs 200 crore within five years. Additionally, guidelines for the voluntary conversion of SFBs into universal banks have been released by the banking regulator.