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The RBI is set to resume ‘on-tap’ licensing of Urban Cooperative Banks (UCBs) after more than two decades. Draft guidelines were released in August 2026 for stakeholder consultation. The move aims to strengthen the cooperative banking sector while ensuring stronger capital, governance and financial stability.

Key Provisions

• The proposed framework seeks to ensure that only financially sound and experienced cooperative societies can enter banking.
• Applicants must have at least 10 years of active operations, a minimum deposit base of ?10,000 crore, net worth of ?300 crore, CRAR of at least 12% and net NPA of not more than 3% at the time of licensing.
• The RBI will initially give preference to societies registered under the Multi-State Co-operative Societies Act, 2002.
• The licensing framework comes against the background of the earlier pause on new UCB licences in 2004, following concerns arising from the rapid expansion under the 1993–2001 liberalised licensing regime, including governance weaknesses and financial instability.

Strengthening the UCB Ecosystem

The National Urban Cooperative Finance and Development Corporation (NUCFDC), an RBI-registered NBFC and umbrella organisation for UCBs, is being promoted to provide shared digital banking infrastructure, cybersecurity, liquidity support, regulatory assistance and capacity building.

At the same time, the RBI has proposed rationalisation of the MCLR and EBLR frameworks to standardise interest-rate calculation and benchmark resets, improving transparency, loan pricing and monetary policy transmission.

Urban Cooperative Banks (UCBs)

• UCBs operate mainly in urban and semi-urban areas, serving small borrowers, MSMEs and retail customers.
• They are regulated by the RBI under the Banking Regulation Act, 1949, while their cooperative/managerial aspects remain under the Registrar of Cooperative Societies or Central Registrar, depending on their jurisdiction.
• The Banking Regulation (Amendment) Act, 2020 strengthened RBI's regulatory powers over cooperative banks.
• Since 2022, UCBs have followed a four-tier regulatory structure based on deposit size: Tier 1 up to ?100 crore; Tier 2 above ?100 crore–?1,000 crore; Tier 3 above ?1,000 crore–?10,000 crore; and Tier 4 above ?10,000 crore.