RBI Proposes Revival of Urban Cooperative Bank Licenses

The Reserve Bank of India (RBI) proposes resuming the issuance of licenses for Urban Cooperative Banks (UCBs) after nearly two decades. This move comes with regulatory requirements, such as a minimum capital threshold of Rs 300 crore, to improve the financial soundness of UCBs. Stakeholder feedback is invited.

In a significant move, the Reserve Bank of India (RBI) announced the resumption of licensing for Urban Cooperative Banks (UCBs) after a two-decade pause. This decision is subject to stringent regulatory conditions, including a minimum capital requirement of Rs 300 crore, aiming to ensure financial sturdiness in the sector.

RBI had halted licenses since 2004, addressing concerns that many newly licensed UCBs quickly became unsound. Now, a discussion paper invites comments from stakeholders by February 13, 2026, weighing the pros and cons of re-issuing licenses. Important questions include the right timing for license resumption and the necessary eligibility criteria.

Historically, RBI consolidated struggling UCBs, often dissolving non-viable ones. With current supervisory restrictions on 82 weak entities, this paper suggests licensing only larger, well-managed cooperative credit societies to mitigate risks. Stakeholders emphasize learning from initial experiences and instituting corrective actions to foster resilience in the banking structure.