The move comes in the backdrop of the scam in Punjab and Maharashtra Cooperative (PMC) Bank causing distress to over 9 lakh depositors.
"Keeping in view the experience gained, it has been decided to further rationalise the SAF to make it more effective in bringing about the desired improvement in the UCBs as also expeditious resolution of UCBs experiencing financial stress," said a RBI notifications.
The central bank also added that it will continue to monitor asset quality, profitability and capital/net worth of UCBs under the revised SAF.
As per the revised norms, a UCB may be placed under SAF when its net NPAs exceed 6 per cent of its net advances.
Depending upon the severity of the stress, the RBI may ask them to curtail their lending powers, among other safeguards.
An urban cooperative bank could also be placed under SAF when it incurs losses for two consecutive financial years or has accumulated losses on its balance-sheet.
Further, issue of show cause notice for cancellation of banking license may be considered by the Reserve bank "when continued normal functioning of the UCB is no longer considered to be in the interest of its depositors/ public", the notification said.
"Supervisory action already taken under the earlier SAF will be reviewed and revised instructions, if any, will be issued to the UCBs concerned," it added.
Following the exposure of scam in the PMC Bank, which has over 9.15 lakh depositors, the RBI imposed restrictions on withdrawals.
Statutory inspection of PMC by the RBI had revealed large group exposure of about Rs 6,226.01 crore to Housing Development and Infrastructure Ltd (HDIL) Group companies.
Of the total exposure to the HDIL group, only Rs 439.58 crore was disclosed to the RBI, while Rs 5,786.43 crore remained undisclosed.