RBI signals openness for licences for new urban cooperative banks

RBI to issue a discussion paper on licensing new UCBs, citing stronger financial performance, better compliance and demand from stakeholders for wider financial inclusion

The Reserve Bank of India (RBI) will shortly issue a discussion paper on licensing of new banks in the urban cooperative banking space, signalling a shift in stance on Urban Cooperative Banks (UCBs). Since 2004, issuance of fresh licences for UCBs had been paused following weak financial health of this sector.

 

In his monetary policy speech, RBI Governor Sanjay Malhotra said the regulator has proposed a public discussion paper in the context of the positive developments in the sector during the last two decades and in response to the growing demand from stakeholders.

 

According to the RBI’s Financial Stability Reports (FSRs), the financial profile of UCBs has improved over the last few years. Their capital position has continued to strengthen in the post-pandemic period, with capital adequacy ratio (CAR) rising to 18 per cent in March 2025, from 17.5 per cent in March 2024 and 16.5 per cent in March 2023.

 

The asset quality of UCBs has also improved with net non-performing assets (NPAs) declining to 0.6 per cent in March 2025 from 2.8 per cent in March 2024 and March 2023. The provision coverage ratio (PCR) improved to 91 per cent in March 2025 from 70.1 per cent in March 2024 and 77.9 per cent in March 2023. Their annualised return on assets (RoA) stood at 0.7 per cent in March 2025 as against 0.8 per cent in March 2024 and 0.55 per cent in March 2023, FSRs showed.

 

Seconding the intent for licences to start new UCBs, Satish Marathe, director, central board of RBI, said besides improved performance and financial profile, UCBs have shown marked improvement in compliance with regulatory norms and practices. Now, the tally of stressed UCBs seeking turnaround is small, and the RBI’s supervision is rapid and proactive. Many new urban centres are emerging in the country, which need financial sector players to meet the requirements of households and micro and small enterprises. “We have to watch out for entry-level norms (relating to new licences),” Marathe added.

 

National Urban Cooperative Finance & Development Corporation (NUCFDC) Chief Executive Officer (CEO) Prabhat Chaturvedi said the umbrella organisation of UCBs in the country considers it as a significant step toward deepening financial inclusion, improving credit flow, and reinforcing stability and credibility of UCBs in India’s financial ecosystem.