RBI Plans to Resume Urban Cooperative Bank Licenses After 22 Years, Review Rural Bank Guidelines

The Reserve Bank of India (RBI) has issued draft guidelines to restart the licensing of urban cooperative banks (UCBs), more than 2 decades after the process was suspended, as per news reports.  

RBI Governor Sanjay Malhotra announced the proposal during the August monetary policy briefing, stating that the draft has been prepared after incorporating feedback received on the discussion paper released in January 2026.  

The central bank will seek comments from stakeholders before notifying the final framework. 

Proposed Conditions for New Applicants 

Under the draft framework, cooperative credit societies applying for a banking licence must have a minimum capital of ₹300 crore as of March 31 of the preceding financial year.  

They should also maintain a capital adequacy ratio of at least 12% and a net non-performing asset (NPA) ratio of not more than 3% at the time of licensing. 

The proposal further states that applicants should have been operational for at least 10 years, with a satisfactory financial record for a minimum of five years.  

While multi-state cooperative credit societies will be given preference, eligible single-state societies with a wider geographical presence may also be considered. 

Licensing Process Resumes After 2004 Halt 

The RBI stopped issuing new UCB licences in 2004 after concerns over the financial condition of several newly licensed banks. The decision followed governance and supervisory issues in the sector, including the 2001 collapse of Madhavpura Mercantile Co-operative Bank. 

The number of urban cooperative banks has since declined from more than 2,100 to 1,457 as of March 31, 2025, due to mergers, closures and regulatory action.  

Between 1993 and 2001, the RBI issued 823 licences to urban cooperative banks. 

Rural Cooperative Banks and Lending Rules 

Alongside the licensing proposal, the RBI will review the credit monitoring framework for rural cooperative banks. The existing system was last revised in 2008, and the updated directions are intended to show changes in the sector over the past 18 years. 

The central bank has also proposed a standardised regulatory framework for interest rates on advances across all regulated entities to improve transparency and bring greater consistency to lending practices. 

Read More: Government Approved ₹4,687 Crore Interest Subsidy for Ethanol Projects Under Various Support Schemes! 

Conclusion 

The central bank has begun consultations on new regulations for the cooperative banking sector, including UCB licensing, rural bank oversight and lending rate rules. The proposals will take effect after the draft guidelines are finalised. 

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