RBI proposes reopening urban co-operative banks licenses

After a 22-year pause (licensing halted in 2004), the Reserve Bank of India (RBI) has proposed reopening licences for Urban Co-operative Banks (UCBs).

RBI halted UCB licensing as many of the newly licensed banks quickly turned financially unsound, and the R Gandhi Committee later advised granting licences only to financially strong credit societies.

About Urban Cooperative Banks (UCBs)

Definition: UCBs are member-owned financial institutions serving urban and semi-urban communities, small borrowers, and micro-businesses.
Legal Basis: They are registered as cooperative societies under either the State Cooperative Societies Act or the Multi-State Cooperative Societies Act.
Regulation: UCBs operate under a dual regulatory framework:
- The RBI oversees banking functions such as licensing, capital adequacy, and risk norms.
- The Registrar of Cooperative Societies (RCS) manages registration, internal governance, audits, and liquidation processes.

Bank Count: Total 1,457 UCBs, with 838 Tier 1 (57.52%), 535 Tier 2, 78 Tier 3 and 6 Tier 4.
Deposit Concentration: 7% UCBs (deposits above ₹1,000 crore) hold 62.5% of sector deposits.
Small Bank Majority: 52% UCBs have deposits below ₹100 crore but contribute only 5.6% of deposits.
Balance Sheet Growth: Assets rose to ₹7.38 lakh crore and deposits to ₹5.84 lakh crore in 2025 (from ₹4.35 lakh crore and ₹3.55 lakh crore in 2015).
Capital Strength: Average CAR 18.0%; around 92% UCBs have CAR above 12% (vs 83% in 2015.
Asset Quality (FY25): GNPA 6.2%, NNPA 0.7%, PCR 90.1%, indicating stronger provisioning.

Restart Licensing: Reopen the UCB licensing window with stricter entry norms, due to past failures among newly licensed small UCBs.
Prefer Credit Societies: Licence mainly large co-operative credit societies with a longer track record, stronger governance and financial maturity.
Wider Footprint: RBI stresses new UCBs need broader presence to compete with Small Finance Banks (SFBs), commercial banks and Non-Banking Financial Companies (NBFCs).
Multi-State Preference: Prefer multi-state co-operative credit societies as applicants; select uni-state societies may be considered if they meet wider footprint conditions.
Consultative Process: Public feedback invited until February 13, 2026, after which RBI may issue detailed draft licensing guidelines for comments.

Minimum Capital: Applicant credit society must have ₹300 crore capital as on March 31 of previous FY.
Track Record: Must have 10 years of active operations and a 5-year good financial track record.
Performance Trend: Must show positive, progressive financial & operational trends over the last 5 years.
Capital Strength: Capital Adequacy Ratio must be at least 12% at the time of licence grant.
Asset Quality: Net Non-Performing Assets (NNPA) must not exceed 3% at the time of licence grant.

Aspect	Co-operative Credit Societies	Urban Co-operative Banks
Regulator	Registrar of Co-operative Societies	Reserve Bank of India (RBI)
Deposit Base	Can accept deposits only from members	Can accept deposits from the general public (subject to norms)
Lending Scope	Can lend only to members	Can lend to members and the public as per banking rules