The Reserve Bank of India is set to revive the issuance of fresh licenses for urban co-operative banks (UCBs), ending a two-decade pause on new entrants in the sector, according to latest reports. The development comes after the RBI released a discussion paper in January seeking feedback on whether it should resume granting licenses to urban co-operative banks. Since 2004, the regulatory standards and supervision on UCBs have improved significantly, granting comfort to the central bank to revive co-op bank licenses. The RBI has received positive feedback on the discussion paper, indicating strong industry support for the initiative.
Sources indicate the RBI has received positive feedback on the discussion paper, with the industry proposing to lower the minimum capital requirement from the proposed ₹300 crore. The discussion paper listed pros and cons of issuing new UCB licenses, with pros including upgraded supervisory standards on UCBs, promoting financial inclusion, improving financial health of UCBs, and UCB sector umbrella organisation handholding smaller UCBs for capital, knowledge and technology. Cons included capital raise issues, the principle of entry and exit of shareholders at face value not giving any incentive to investors, and governance issues and lack of depth in board and technology infrastructure.
As of March 2025, 1,457 UCBs existed with assets of ₹7.38 lakh crore and total deposits of ₹5.84 lakh crore, according to the latest data. This substantial sector presence demonstrates the continued importance of co-operative banking in India's financial landscape, supporting the RBI's decision to revive license issuance after nearly two decades of suspension. The sector's significant scale and presence provides a strong foundation for the proposed expansion of new entrants.
