RBI To Restart UCB Licensing, Proposes Changes To Lending Rate Framework

New Delhi, Aug 5 (KNN) The Reserve Bank of India (RBI) on Wednesday announced a set of regulatory measures, including the resumption of licensing for Urban Co-operative Banks (UCBs) on an ‘on-tap’ basis, ending a pause of nearly two decades.

The decision follows stakeholder feedback on a discussion paper issued in January 2026. 

The central bank said draft guidelines for the new licensing framework will be released shortly for public consultation before finalisation.

Review of Risk Norms for Rural Co-operative Banks

The RBI also proposed a review of prudential norms related to concentration risk management for Rural Co-operative Banks (RCBs). The existing framework is based on Credit Monitoring Arrangement (CMA) guidelines issued in 2008.

The central bank noted that the co-operative banking sector has undergone significant expansion and structural changes since then, necessitating an update to ensure balanced growth while addressing risks arising from concentrated lending. Draft amendment directions will be issued for stakeholder comments.

Rationalisation of Loan Interest Rate Framework

Separately, the RBI proposed to rationalise guidelines governing interest rates on advances across all regulated entities. The move aims to adopt a principle-based approach to harmonise regulations while maintaining proportionality.

The proposed framework will address operational aspects of the Marginal Cost of Funds-based Lending Rate (MCLR) and External Benchmark Lending Rate (EBLR) systems. It also seeks to standardise market practices such as day-count conventions and benchmark reset dates.

According to the RBI, these changes are intended to improve transparency in loan pricing, strengthen monetary policy transmission and enhance consumer protection. Draft directions on the revised framework will be released for public consultation.

RBI Governor Sanjay Malhotra said the initiatives are aimed at strengthening the co-operative banking ecosystem and improving regulatory consistency across the financial sector.

(KNN Bureau)