NUCFDC Seeks RBI Nod for Smaller Urban Cooperative Banks

The National Urban Co-operative Financial and Development Corporation Ltd (NUCFDC)—the apex body representing India’s urban cooperative banks (UCBs)—is preparing to request the RBI to allow small UCBs with net worth below ₹50 crore to offer digital services such as internet banking, mobile banking, and UPI.

Current RBI Rules

Under existing RBI regulations:

• Only UCBs with net worth above ₹50 crore can offer digital services.
• Over 50% of India’s 1,462 UCBs fail to meet this benchmark.
• These smaller UCBs collectively form a large part of the cooperative banking ecosystem that holds ₹5.5 trillion in deposits.

This restriction means a majority of UCBs cannot provide modern digital banking facilities to their customers.

What NUCFDC Is Proposing

NUCFDC wants RBI to consider an alternative compliance model:

• If smaller UCBs become part of a centralized, secure, standardized technology infrastructure, they should be allowed to offer digital services even without ₹50 crore net worth.
• The argument: shared infrastructure reduces cyber risk and ensures uniform quality.

NUCFDC’s Role and Infrastructure Plan

NUCFDC received its licence in February 2024 as a mid-layer NBFC.
Its current focus is non-fund-based support for UCBs, especially digital modernization.

Key components of the central stack NUCFDC is building:

• IT hardware and applications
• Digital banking platforms
• Cybersecurity systems
• Centralized manpower and maintenance
• A unified architecture that UCBs can plug into

This infrastructure is being built for 440 UCBs that have partnered with NUCFDC so far.

Why This Matters

• The cooperative banking sector serves small businesses, lower-income customers, and urban neighbourhood markets.
• Lack of digital services limits their competitiveness against scheduled commercial banks and small finance banks.
• Digital access is increasingly essential for customer retention, payments, and compliance.

Pending Regulatory Response

Queries sent to RBI and the finance ministry remain unanswered.
RBI will need to evaluate whether the proposal aligns with:

• Cybersecurity standards
• Operational resilience
• Consumer protection
• Risk management norms for banks with weaker capital buffers

India’s Urban Cooperative Banks (UCBs)

Urban Cooperative Banks (UCBs) are financial institutions operating on a cooperative model, primarily serving urban and semi-urban areas. They cater to lower- and middle-income groups, small businesses, and local communities.

Key Features of UCBs:

• Cooperative Structure: Owned and managed by members on the principle of “one member, one vote.”
• Urban/Semi-Urban Focus: Serve cities and towns, unlike rural cooperative banks that cater to villages.
• Regulated by Dual Authorities:
  • RBI: Banking functions, licensing, prudential norms, supervision.
  • State Government / Central Registrar: Management and administrative aspects.
• Product Offerings: Provide deposits, loans, advances, and basic retail banking services. Larger UCBs also offer digital banking and RTGS/NEFT.
• Types:
  • Scheduled UCBs: Included in the RBI’s Second Schedule; enjoy higher regulatory credibility.
  • Non-Scheduled UCBs: Smaller banks not in the Second Schedule.