RBI directs implementation of system-based asset classification in urban co-operative banks

The Reserve Bank of India (“RBI”), vide its notification dated August 12, 2020, directed implementation of system-based asset classification in urban co-operative banks (“UCBs”), with an intent to improve efficiency, transparency and integrity of the asset classification process. System-based asset classification refers to asset classification (downgrading as well as upgrading) carried out by computerized systems of a bank in an automated manner on an ongoing basis, based on guidelines issued by the RBI. Key points UCBs with assets of ?2,0000000000 (Rupees two hundred0000000) or more as on March 31, 2020 shall implement the system-based asset classification from June 30, 2021. UCBs with assets of ?1,0000000000 (Rupees one hundred0000000) or above but less than ?2,0000000000 (Rupees two hundred0000000) as on March 31, 2020, having self-assessed themselves as being under Level III or Level IV in terms of circular DoS.CO/CSITE/BC.4083/31.01.052/2019-20 dated December 31, 2019 on ‘Comprehensive Cyber Security Framework for Primary (Urban) Cooperative Banks (UCBs) – A Graded Approach’ (“Comprehensive Cyber Security Framework for UCBs”) shall implement the system-based asset classification from September 30, 2021. A UCB is said to fall within the ambit of Level III or Level IV of Comprehensive Cyber Security Framework for UCBs, when it satisfies either of the following Level III it is either a direct member of Centralised Payment Systems (“CPS”), or has its own ATM switch, or SWIFT interface; or Level IV it is a member/ sub-member of CPS, and has its own ATM Switch and SWIFT interface, or hosts a data centre or provides software support to other banks on its own or through its wholly owned subsidiaries. UCBs which meet the above criteria as at the end of the current or subsequent financial years to implement system-based asset classification within a period of 6 (six) months from the end of the financial year concerned. UCBs not meeting the above criteria can also voluntarily implement this system in their own interest. All concerned UCBs can conduct pilot runs of this system for evaluating the accuracy of its results in compliance with the applicable RBI instructions to ensure that they are ready for its implementation from the appointed date. Please find a copy of the notification dated August 12, 2020 here. This update has been contributed by Suchita Ambadipudi (Partner) and Mitali Jain (Associate).