RBI Releases Discussion Paper On UCB Licensing, Invites Comments By Feb 13, 2026

New Delhi, Jan 14 (KNN) The Reserve Bank of India (RBI) has released a discussion paper on licensing new Urban Co-operative Banks (UCBs), seeking comments from stakeholders and the public by February 13, 2026. 

The move follows a two-decade pause and was announced in the RBI Governor’s Monetary Policy Statement on October 1, 2025.

The discussion paper seeks feedback on two key questions: whether it is the right time to resume licensing and what eligibility criteria should apply.

Supporters argue that UCBs are vital for financial inclusion, especially in smaller towns, and that enhanced regulatory oversight, sector consolidation, and support from the Umbrella Organisation have strengthened resilience.

Critics highlight challenges such as capital-raising difficulties, governance gaps, limited technology adoption, and risk management issues. Historical failures and the cooperative structure can constrain growth.

As of March 31, 2025, India had 1,457 UCBs across four tiers based on deposits. Tier 1 banks (deposits below Rs 100 crore) accounted for 57 per cent of UCBs but only 5.6 per cent of total deposits, while Tier 4 banks (deposits above Rs 10,000 crore) numbered six but held 23.8 per cent of deposits. Sector health has improved, with average CRAR at 18 per cent and GNPA at 6.2 per cent.

Proposed Eligibility Criteria

Capital: Minimum Rs 300 crore as of the previous financial year.

Track Record: At least 10 years of operations with sound financial performance over the past five years (CRAR ≥12 per cent, Net NPA ≤3 per cent).

Governance: Professional and independent board; statutory amendments may be needed to align state laws.

Scale: Preference for multi-state societies or uni-state societies with broad customer coverage to ensure viability and competitiveness.

Following the consultation, RBI will issue a draft guideline for further public feedback. Comments can be submitted via the ‘Connect to Regulate’ portal on the RBI website.

(KNN Bureau)