Recently, RBI has released a discussion paper exploring the potential resumption of licensing for Urban Co-operative Banks (UCBs) prompted by positive developments in the sector, increased demand from stakeholders, and a strengthened regulatory framework under the RBI.
- Since 2004, licensing for Urban Co-operative Banks (UCBs) had been paused as it was found that a large number of the newly licensed UCBs became financially unsound within a short period.
Arguments for resumption of Licensing
- Financial Inclusion: UCBs play an important role in serving remote and small towns, contributing to financial inclusion.
- Enhanced Regulatory Powers: The RBI's supervisory capabilities have been considerably strengthened by the 2020 amendment to the Banking Regulation Act.
- Institutional Support: Newly functional Umbrella Organisation (NUCFDC) is expected to provide critical capital, knowledge, and technology support, further strengthening the sector.
About UCBs
- UCBs are a co-operative society registered under any State Co-operative Societies Act or under the Multi-State Co-operative Societies Act that has been given a banking license as a primary co-operative bank under the Banking Regulation Act, 1949.
- Current status of UCBs in India:
- Total UCBs: 1457 (as of March 31, 2025).
- Regulatory Framework (Dual Control)
- Reserve Bank of India (RBI): Since 1966, RBI regulates banking functions including licensing, capital adequacy, loan policies, prudential norms and financial stability.
- Registrar of Co-operative Societies (RCS): State or Central Governments regulate administrative and management aspects through the RCS.
- Tiered Regulatory Structure: UCBs are classified by the RBI into four tiers based on deposit size, enabling proportionate regulation and supervision.
