RBI Revises Priority Sector Lending Norms To Support Cooperative Banks

New Delhi, Feb 11 (KNN) The Reserve Bank of India (RBI) has made a significant change in the rule to treat loans sanctioned by banks to the National Cooperative Development Corporation (NCDC) for on-lending to cooperative societies as priority sector lending (PSL) under respective categories.

The change in rule comes into effect for loans sanctioned by banks from January 19, 2026.

In written reply to a question in Rajya Sabha, Minister of State for Finance Pankaj Chaudhary said that the provision applies to all banks except Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks and Local Area Banks, and covers activities specified in the Master Direction on Priority Sector Lending, 2025.

NCDC, a statutory corporation under the administrative control of the Ministry of Cooperation, extends financial assistance to cooperative institutions and plays a role in supporting the cooperative movement. The revised PSL norms are aimed at facilitating greater credit flow to cooperative societies through NCDC.

The MoS Finance said that government and the RBI have also introduced a series of measures to strengthen the financial health, governance standards and digital capabilities of cooperative banks, while enhancing depositor protection and regulatory oversight. 

Urban Cooperative Banks (UCBs) have been permitted to open new branches, and their housing loan exposure limit has been raised from 10 per cent to 25 per cent of total loans and advances. Amendments to the Banking Regulation Act have extended the tenure of directors of cooperative banks from eight to ten years.

To support digital inclusion, licensing fees for onboarding cooperative banks to the Aadhaar Enabled Payment System (AePS) have been reduced. 

The National Urban Co-operative Finance and Development Corporation Limited (NUCFDC), a non-deposit taking non-banking financial company, has been established as an umbrella organisation to provide IT infrastructure and operational support to UCBs. Additionally, a Shared Services Entity, ‘Sahakar Sarthi’, has been set up to deliver technological services to Rural Cooperative Banks, which have also been brought under the RBI’s Integrated Ombudsman Scheme.

Deposits in cooperative banks continue to be covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures deposits up to Rs 5 lakh per depositor per bank, including principal and interest.

(KNN Bureau)