Urban cooperative banking may soon see a fresh licensing framework after more than two decades, with the Reserve Bank of India proposing stricter entry norms for credit cooperative societies seeking conversion into urban cooperative banks. The move is aimed at improving governance, capital strength and long-term resilience in a sector that has often faced weak balance sheets and supervisory concerns.
New Eligibility Criteria
The discussion paper suggests that only large and well-managed credit cooperative societies should be eligible for a UCB licence. Key proposed conditions include:
- Minimum capital of ₹300 crore.
- Capital adequacy ratio above 12%.
- Net non-performing loans below 3%.
- Sound track record for at least five years.
- At least 10 years of active operations before conversion.
Focus on Governance and Resilience
The RBI has linked the proposal to the need for stronger governance standards in UCBs. It has indicated that the boards of such banks should be professional and independent, similar to commercial banks. The central bank has also stressed progressive financial performance over the preceding five years as a key filter for entry.
Need for Legal and Regulatory Changes
The paper notes that statutory amendments may be required in State and Multi-State Cooperative Acts to enforce the proposed governance norms. This is because cooperative institutions operate under a legal framework that differs from that of commercial banks, especially in board composition and control mechanisms.
Urban Cooperative Banking Sector Snapshot
As on 31 March 2025, there were 1,457 urban cooperative banks in the country. The sector continues to face stress in several institutions. At present, 82 weak UCBs are under supervisory restrictions. Of these, 28 very weak UCBs are under All-Inclusive Directions, 32 are under Prompt Corrective Action, and 22 are under the Supervisory Action Framework.
Last Modified: April 26, 2026