Why in News?
- The Reserve Bank of India (RBI) has decided to impose restrictions on urban cooperative banks (UCBs) for deterioration of financial position, in line with the prompt corrective action (PCA) framework that is imposed on commercial banks
- RBI’s action includes cancellation of banking license
- Under this revised Supervisory Action Framework (SAF), UCBs will face restrictions for worsening of three parameters
- That is when net nonperforming assets exceed 6% of net advances.
- When they incur losses for two consecutive financial years or have accumulated losses on their balance sheets.
- If capital adequacy ratio falls below 9%.
- RBI said actions such as imposition of all inclusive directions under Section 35A of the Banking Regulation Act, 1949, and issue of show cause notice for cancellation of banking license may be considered when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors/public.