RBI looks to resume UCB licences after 22 yrs; moots ₹300 cr min capital

CAR not less than 12%; net NPA not above 3%

The Reserve Bank of India (RBI) has floated a discussion paper on licensing of urban cooperative banks, proposing minimum capital and asset quality parameters, which will be followed by draft norms.

 

Licensing for urban co-operative banks (UCBs) was paused in 2004.

 

The discussion paper proposes minimum capital requirement for a co-operative credit society at ₹300 crore as on the March 31 of the previous financial year to be eligible to apply, with assessed capital adequacy ratio not be less than 12 per cent and the net NPA ratio not be more than 3 per cent at the time of grant of license to the eligible applicant.

 

The average capital adequacy ratio of the UCBs stood at 18.0 per cent. At present 92 per cent UCBs have CAR above 12 per cent (regulatory minimum for Tier 2-4 UCBs) as compared to 83 per cent UCBs in 2015.

 

The asset quality of present UCBs, measured by gross non-performing assets (GNPA) ratio, was 6.2 per cent as of March 31, 2025 with Net NPA was at 0.7 per cent and provisioning coverage ratio at 90.1 per cent.

 

The comparative figures for 2015 were 6.02 per cent, 2.66 per cent and 57.7 per cent respectively.

 

“Considering the fact that most of the failures of UCBs have been of smaller banks, if licensing is resumed for UCBs, it may be prudent to license only large co-operative credit societies. A large co-operative credit society will have a longer track record,” the paper said.

 

The discussion paper said that active operations for at least 10 years and a good financial track record of at least 5 years are desirable from a co-operative credit society to apply for a licence.

 

“The society must demonstrate a positive and progressive trend in operating and financial parameters in the previous five years,” it said.

 

Emphasising on a wider geographical footprint for prospective banks, the discussion paper said it was also necessary that these UCBs need to compete effectively with sectoral peers such as SFBs, other commercial banks, and NBFCs, which leverage pan-India operations.

 

“Therefore, multi-state co-operative credit societies may be preferred entities, but select uni-state co-operative credit societies which are otherwise compliant with wider footprint may also be considered,” it said.

 

The last date of submitting the feedback of the discussion paper is February 13, 2026.

 

“After comments on the Discussion Paper are received, RBI will consider issuing detailed draft guidelines on Licensing of Urban Co-operative Banks for public feedback,” the paper said.

 

As on March 31, 2025, there were 1,457 UCBs, comprising 838 Tier-I (57.52 per cent), 535 Tier II, 78 Tier III and six Tier IV UCBs.

 

In terms of deposits, Tier I, Tier II, Tier III and Tier IV UCBs constituted 11.3 per cent, 30.6 per cent, 34.4 per cent and 23.8 per cent respectively of the total deposits of the sector.

 

The total aggregate assets of the UCBs were ₹7.38 trillion, and total deposits ₹5.84 trillion as on March 31, 2025 as compared to ₹4.35 trillion and ₹3.55 trillion respectively in 2015.

 

The return on assets and the net interest margin were 0.74 per cent and 3.62 per cent as on March 31, 2025 as compared to 0.84 per cent and 2.97 per cent respectively as on March 31, 2015.