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In a recent notification released by the Reserve Bank of India (RBI), it has decided to implement a system based asset classification for Urban Co-operative Banks. The RBI asked UCBs with assets of 2000 crore rupees or more to implement the system based asset classification from June 30, 2021.
UCBs are also called Primary Co-operative Banks. They are distinct from Commercial banks and were born out of the concept of co-operative credit societies where members of a community group come together to extend loans to each other at favourable terms.
The Reserve Bank regulates and supervises the functioning of UCBs under the provisions of Banking Regulation Act, 1949, and also the aspects such as registration, management, and administration.
System based Asset Classification refers to asset classification (downgrading and upgrading) carried out by computerized systems of a bank in an automated manner on an ongoing basis, based on the relevant instructions or guidelines of the RBI.
The RBI[1] stated in the notification that with a view to improving the efficiency, transparency, and integrity of the asset classification process, it had been decided to implement a System based Asset Classification in UCBs.
The key highlights of the RBI notification regarding system based asset classification for UCBs are as follows:
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