About the proposal to introduce a risk-based deposit insurance regime, RBI Governor Sanjay Malhotra noted that although the existing system is easy to understand and manage, it makes no distinction between banks based on their solidity | Photocredit: Francis Mascarenhas
Consolidation among existing urban cooperative banks and licenses of new can go hand in hand, if the latest proposals from Reserve Bank of India with regard to the introduction of risk-based deposit insurance and allowing new banks are something to visit.
The pace of amalgamation at Urban Cooperative Banks (UCBs) could accelerate as weaker among them with a lower supervisory rating, can try to voluntarily combine their stronger counterparts with superior supervisory rating, because the first will feel that the snuff will be deducted.
“As it is, weaker UCBs pay higher deposit rates to attract deposits. If these banks have to pay a higher deposit insurance premium in addition to this, they have no choice but to pass on the increased costs to the borrowers. So, the affairs of such UCBs can become impossible, so that they are forced to be forced to amalgamations to be forced to amalgamations.
There are 451 weak UCBs in the country. This includes 20 UCBs under all -inclusive directions (AID) and 431 under supervisory action -framework (SAF) of RBI. So all these banks can investigate the merger option.
Banks are currently charged a uniform premium of 12 PAISE per £ 100 of assessable deposits. The current coverage limit of the deposit insurance is £ 5 percher per preserver of a bank for deposit accounts that are kept ‘in the same capacity and in the same law’.
In 2004-05, the RBI started a process of consolidation between UCBs, including merging of non-living with their viable counterparts, closing of non-living entities and suspension of the issue of new licenses. As a result, the number of financially unhealthy UCBs fell steadily over the past two decades from 1,926 to 1,472, according to the latest report from RBI on trend and progress of banking in India.
Since 2004-05, the sector has witnessed 156 mergers, including six in 2023-24, three of which were in Maharashtra, two were in Telangana and one was in Gujarat. Maharashtra was good for the majority of the mergers in the past two decades, followed by Gujarat and Andhra Pradesh.
During 2023-24, licenses of 24 UCBs were canceled, which increased the total number of cancellations to 70 since 2015-16. 94.3 percent of the cancellations were in the non-planned category, according to the report.
About the proposal to introduce a risk-based deposit insurance regime, RBI governor Sanjay Malhotra noted that although the existing system is easy to understand and manage, it makes no distinction between banks based on their solidity.
That is why the Central Bank proposes to introduce a risk-based premium model, that banks will help that are more healthy to save considerably in the paid premium. The RBI is planning to implement the new model from the next financial year.
New UCBs
The relocation of the RBI to drive a discussion document about the licenses of UCBs comes in the background of the Minister of the Interior and Minister of Cooperation Amit Shah in March 2024 that there should be an urban cooperative bank in every city.
Malhotra recently noted that since 2004 the issue of a new license for UCBs had been paused after a weak financial health of the UCB sector.
He emphasized that, given the fact that since then more than two decades have elapsed and the positive developments in the sector, a discussion document about the licenses of new UCBs will soon be published.
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Published on October 5, 2025
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