The central bank would consider financial restructuring proposals submitted by UCBs, involving conversion of deposits into equity/IPDI, even if the networth of the bank does not become positive after such conversion of deposits, provided the depositors agree voluntarily for such conversion
Mumbai: The Reserve Bank of India (RBI) said it will consider the financial restructuring proposals of urban co-operative banks (UCBs) for conversion of deposits into equity even if the networth of the bank does not become positive, reports PTI.
The RBI considers financial restructuring proposals as an additional option for resolution of banks problem.
"...the Reserve Bank would...consider financial restructuring proposals submitted by UCBs, involving conversion of deposits into equity/IPDI, even if the networth of the bank does not become positive after such conversion of deposits, provided the depositors agree voluntarily for such conversion," RBI said in a notification.
Earlier, it was required that the proportion of deposits converted into equity/IPDI should be such that the net worth of the bank after reconstruction turns positive.
UCBs are required to conform to few norms for financial restructuring, including full protection of the interest of small depositors, conversion of deposits into equity or innovative perpetual debt instruments (IPDI) on depositors consent and non-redemption of shares until the bank achieves risk-weighted assets ratio (CRAR) of 9%, the notification said.
Also, post-restructuring, the management of the bank comes in the hands of a board of administrators consisting representatives of individual depositors and professional bankers to ensure proper implementation of reconstruction scheme including recovery of non-performing assets (NPAs).
Moreover, such banks have to maintain CRR/SLR on the restructured liabilities.
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