Source: The Hindu
Context:
Announced alongside the August 2026 monetary policy, the RBI will resume licensing of Urban Cooperative Banks (UCBs) on an “on tap” basis after a pause of more than two decades, as part of developing a vibrant cooperative sector. Governor Sanjay Malhotra said draft guidelines would be issued shortly for stakeholder consultation.
What It Is
Three developmental and regulatory measures announced alongside the monetary policy:
1. On-tap licensing of UCBs
- A discussion paper on Licensing of UCBs was published on 13 January 2026 for stakeholder feedback; the decision follows that feedback.
- There are 1,457 urban cooperative banks as per RBI and NABARD.
- Fresh UCB licensing had been paused since 2004, following governance failures and bank collapses in the sector.
- “On tap” means the application window stays continuously open — applicants may apply at any time rather than only in specific rounds. The RBI already follows this for universal banks and small finance banks.
Indicative eligibility criteria proposed in the draft for credit cooperative societies seeking conversion:
| Criterion | Threshold |
|---|---|
| Minimum deposit base | ₹10,000 crore |
| Minimum net worth | ₹300 crore |
| Years in existence | At least 10 years |
| CRAR | At least 12% |
| Net NPA ratio | Not more than 3% |
| Registration | Multi-State Co-operative Societies Act, 2002 |
Multi-state societies will be considered first; select uni-state societies with a wider footprint may follow. No member may hold more than 5% of share capital; directors may not hold executive positions. Applications will be made through the RBI’s PRAVAAH portal; in-principle approval is valid for 18 months.
2. Review of concentration risk norms for RCBs
- Currently governed by the Credit Monitoring Arrangement (CMA) instructions of 2008.
- The banking sector generally, and cooperative banking in particular, have expanded and changed significantly over 18 years, requiring a fresh look at prudential norms.
- Objective: develop a vibrant cooperative sector while addressing prudential concerns arising from concentrated lending.
- Draft amendment directions to be issued for wider consultation.
Background: Cooperative Banking Structure
| Tier | Institutions |
|---|---|
| Urban Cooperative Banks | Single-state and multi-state; urban and semi-urban areas |
| Rural Cooperative Banks (short-term) | State Cooperative Banks → District Central Cooperative Banks → Primary Agricultural Credit Societies |
| Rural Cooperative Banks (long-term) | State and Primary Cooperative Agriculture and Rural Development Banks |
- Dual regulation: the RBI regulates banking functions under the Banking Regulation Act, 1949; incorporation, management and audit rest with the Registrar of Cooperative Societies (State) or the Central Registrar (multi-state).
- The Banking Regulation (Amendment) Act, 2020 expanded RBI powers over cooperative banks after the PMC Bank crisis.
- DICGC deposit insurance of ₹5 lakh per depositor per bank covers cooperative banks.
- NABARD supervises State Cooperative Banks and District Central Cooperative Banks.
Exam Relevance
NABARD Grade A — Very high relevance. NABARD supervises State Cooperative Banks and District Central Cooperative Banks, and the review of concentration risk norms for RCBs falls squarely in its domain. Know the CMA instructions of 2008, the rural cooperative structure, PACS computerisation, and NABARD’s refinance role. Expect direct questions on the UCB count (1,457) and on the RCB concentration-risk review.
RBI Grade B — Highest-priority item alongside the policy decision itself.
