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The Reserve Bank of India (RBI) on Tuesday released a discussion paper proposing the possible resumption of licensing for new Urban Co-operative Banks (UCBs), ending a pause that has been in place since 2004. The move comes amid significant changes in the regulatory framework and an improvement in the overall financial health of the UCB sector.
"Since 2004, licensing for Urban Co-operative Banks (UCBs) had been paused. Considering the positive developments in the sector during the last two decades and in response to the growing demand from the stakeholders, we propose to publish a discussion paper on licensing of new UCBs," RBI said in a statement. In its discussion paper titled "Licensing of Urban Co-operative Banks", the central bank noted that while a large number of UCBs licensed during the liberalised phase of the 1990s later turned financially unsound, the operating environment has since evolved. The RBI has proposed stringent eligibility norms. These include permitting only large and well-run co-operative credit societies to apply, a minimum capital requirement of Rs 300 crore, at least 10 years of active operations, and a sound financial track record over the past five years. Preference may also be given to multi-state co-operative credit societies to ensure wider geographical reach and better risk diversification. "Minimum capital requirement for a co-operative credit society should be Rs 300 crore as on the March 31 of the previous financial year to be eligible to apply," RBI said. According to the RBI, the number of UCBs has declined steadily from over 2,100 in 2003 to 1,457 as of March 31, 2025, largely due to consolidation and the closure of weak entities. At the same time, the sector's financial indicators have improved, with average capital adequacy at 18 per cent and net non-performing assets declining sharply over the past decade. The paper lays out arguments both for and against reopening the licensing window. Proponents cite the role of UCBs in financial inclusion, particularly in small towns and semi-urban areas, and the expected support from the National Urban Co-operative Finance and Development Corporation, which has been operational since February 2024. The RBI has invited public comments on whether it is the right time to resume UCB licensing and on the proposed eligibility criteria. Feedback can be submitted through the central bank's 'Connect to Regulate' platform. Based on the responses, the RBI may issue draft guidelines for public consultation at a later stage. (ANI)
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