Karnataka State Co-operative Urban Banks Federation Ltd.

FAQs on Opining Branches by UCBs without prior approval from RBI

After the amendments to Banking Regulation Act,1949 (AACS) in 2020 an expert
committee was appointed to recommend ways to implement the amendments. The
committee, inter-alia, recommended that strong Urban- Co-operative Banks may be
permitted to open new branches without prior approval from RBI (automatic route).
The RBI vide circular DOR.REG. No.19/07/01.000/2020-24 dated June 08,2023 has
permitted the Financially Sound and Well Managed (FSWM) UCBs (except Salary
Earners UCBs) to open branches under automatic route. For the benefit of our
members we have analysed the said circular and, for easy understanding we have
putout following questions and answers:
S.N Questions Answers
o
1 What is the existing route for FSWM UCBs have to submit Annual
opening new branches? Business Plan (ABP) to RBI in the month
of December and wait for approvals (prior
approval route)
2 What is the new automatic The RBI vide circular referred to above
route for opening branches? has permitted the FSWM UCBs to open
every year a specified number of new
branches without prior approval. This is
called general permission or automatic
route.
3 Which are the FSWM UCBs? The UCBs fulfilling following criteria are
called FSWM banks viz:
a) The CRAR shall be at least 1
percentage point above the minimum
CRAR applicable to an UCB as on the
reference date;
b) Net NPA of not more than 3%;
c) Net profit for at least three out of the
preceding four years subject to it not
having incurred a net loss in the
immediate preceding year;
d) No default in the maintenance of CRR /
SLR during the preceding financial year;
e) At least two professional directors on
the Board;
f) Core Banking Solution (CBS) fully
implemented; and
g) No monetary penalty imposed on the

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4 Who will classify an UCB as
FSWM?
5 What is the specified number
of new branches that can be
opened without prior
approval?
6 What a about the UCBs
having less than 10 branches?
7 Where the branches can be
opened?
8 What about the opening of
Extension counters, ATMs,
etc?
9 Can UCBs convert the existing
Extension counter in to a
branch?
10 Whether a bank has to assess
the availability of head room inrequirement for opening the branch is
the net worth as assessed by
RBI (ANW) for the proposed
branch/s as required underproposed branch/s.
the prior approval route?
11 Before opening branches Before opening the branch, a bank has to
under automatic route what initiate the following steps:
are the steps that have to be
initiated by a UCB?
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bank by RBI during the last two financial
years.
The process of deciding the eligibility for
being classified as a FSWM UCB may be
carried out by UCBs themselves based on
the assessed financials and findings of
RBI inspection report or audited financial
statements, whichever is latest.
The eligible UCBs are permitted to open
new branches up to 10 per cent of the
number of full-fledged branches (at the
end of previous financial year) in a
financial year, subject to a maximum of
five branches without having the need to
take permission from RBI.
If eligible, they can open one branch
every year.
The new branches can be opened only
within the area of operation of the bank.
Opening of Extension counters,
Controlling Offices (Regional/ Zonal/
Administrative Office), ATMs etc. is not
covered under atomic route and they will
continue to be governed by extant
guidelines.
Banks have the liberty to either open a
new branch or upgrade an Extension
Counter, which has been in operation for
more than three years, to a full-fledged
branch, within the overall limit of 10
percent.
Under automatic route, the only
FSWM status and there is no need for
allocation of ANW for existing and
i) Put in place a policy
ii) Satisfy itself that it is a FSWM
bank
iii) Arrive at the eligible number of
branches that can be opened
iv) Identify the locations for
branch/s
v) Prepare viability report for each
proposed branch
vi) Pass a Board resolution
vii) Submit a report to RBI in the
 format given in Annex III to the
circular within 15 days after
opening the branch/s.
12 We have less than 10 The restriction of one tenth of existing
branches and propose to open branches or minimum one is applicable
more than one branch. What only under automatic route. If you want
is the alternative? more branches than your eligibility under
automatic route, you can apply to RBI
under prior approval route. For
submission of ABP under prior approval
route and completion of other formalities,
a specific time-line has been prescribed by
the RBI.
13 In addition to the general The “other eligible UCBs” means the
permission, the branch FSWM banks which do not wish to opt for
expansion under the prior automatic (general permission) route for
approval route as per the opening branches but prefer prior approval
existing framework will also route for whatever reasons.
continue, as hitherto, for other
eligible UCBs. Who are ‘other
eligible UCBs’?
14 While opening the branch The banks have to submit report to RBI in
under automatic route, is it the format given in Annex III to the RBI
required to submit viability circular refer to above, which does not
report to RBI? include viability report.
15 For Salary Earners Co- For opening branches, Salary Earners
operative Banks what is the Co-operative Banks are continued to be
procedure for opening the guided by the instructions contained in
branches? Para 8 of RBI Master circular on Branch
authorisations, etc dated July 1,2015.
16 Is there any obligation to open No
certain percentage of new
branches in unbanked areas
as recommended by the
Expert Committee?
17 Can a non-FSWM bank apply There is no bar in applying, however, the
for branches to RBI under chances of getting approval for new
prior approval route? branches is almost nil.
18 Are there any changes in the When the FSWM banks are at liberty to
guidelines for shifting of open specified number of branches,
branches? ideally, they should have the liberty to shift
the existing branches to convenient
places. However, the circular is silent
about this.
Compiled by Sudhakara Bhat, Banking Advisor

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