In a significant move to enhance financial stability and governance, the regulatory landscape for Multi-State Cooperative Societies (MSCS) undergoes a transformation with the issuance of prudential norms under the Multi-State Cooperative Societies (MSCS) (Amendment) Act, 2023.
This regulatory overhaul aims to strengthen the financial health of MSCS, ensuring prudential norms are followed, and transparency and accountability are maintained. These directives come into effect with the approval of the Competent Authority and mark a pivotal step towards a more robust cooperative sector.
These norms are also applicable to multi-State multi-purpose societies engaged in credit activities, requiring separate accounts for credit functions.
The MoC announced comprehensive guidelines, covering liquidity, exposure, and capital adequacy for MSCS, excluding multi-State cooperative banks. Here’s a detailed look at the key aspects:
Categorization of MSCS:
MSCS will now be classified into Micro, Small, Medium, and Large categories based on their deposits. Notably, all employees’ thrift and credit cooperative societies fall under the Micro category for regulatory purposes.
Capital Structure:
The capital of MSCS will be divided into Tier-I and Tier-II capital, aligning with the RBI guidelines for Urban Cooperative Banks (UCBs).
Capital Adequacy Ratio (CAR):
Each MSCS is mandated to maintain a Capital to Risk Weighted Assets Ratio (CRAR) as per their size classification. The minimum CRAR for Micro and Small MSCS is 9%, while for Medium and Large MSCS, it is 12%. The existing MSCS failing to meet this requirement have a grace period of 5 years for compliance.
Refund of Share Capital:
Share capital refund is contingent upon the MSCS maintaining CRAR above the minimum stipulated and ensuring that the refund does not result in a breach of the CRAR requirement.
Liquidity Management:
MSCS are required to maintain specific liquidity buffers, including cash and investments, to ensure financial stability and meet short-term obligations.
Exposure Management:
Stringent exposure limits have been defined, including aggregate exposure, individual borrower exposure, and exposure to housing and commercial real estate.
Branch Expansion:
MSCS meeting specified criteria can open branches within their area of operation, subject to compliance with CRAR norms, NPA thresholds, profitability, and other regulatory conditions. Those not meeting the criteria require approval from the Central Registrar before branch
expansion.
Reports and Disclosures:
MSCS are mandated to submit business parameters and prudential ratios on a quarterly basis through the CRCS portal.
Implementation Schedule:
The existing MSCS not meeting the minimum CRAR requirements are granted a five-year timeline for compliance. All MSCS must adhere to exposure norms within two quarters from the date of this order.