RBI Proposes to Resume UCB Licensing

Source: IE

Context:

The Reserve Bank of India (RBI) has released a Discussion Paper proposing to resume licensing of Urban Co-operative Banks (UCBs)—a process paused since 2004. The paper outlines minimum capital, asset quality, governance, and footprint criteria, to be followed by draft norms after public consultation.

Key Proposals

1. Minimum Eligibility Thresholds

• Minimum capital: ₹300 crore (as of March 31 of the previous FY)
• Capital Adequacy Ratio (CAR): ≥ 12%
• Net NPA: ≤ 3% at the time of licence grant

(Context: Average CAR of existing UCBs is ~18%; 92% have CAR >12%.)

2. Track Record & Financial Soundness

• Active operations: at least 10 years
• Good financial track record: at least 5 years
• Positive, improving trends in operating and financial parameters over the last five years

3. Size & Risk Rationale

• RBI notes that most past UCB failures involved smaller banks.
• Hence, the proposal favours licensing only large co-operative credit societies with longer, stable track records.

4. Geographic Footprint

• Preference for multi-state co-operative credit societies to ensure scale and competitiveness.
• Select uni-state societies may be considered if they demonstrate a wider footprint.
• Aim: enable UCBs to compete with SFBs, commercial banks, and NBFCs that operate pan-India.