Multi-State Co-operative Credit Societies Can Save on Getting Urban Co-op Bank License: RBI Discussion Paper

The article notes that the governance standards applicable to a bank should ideally be agnostic to the structure of the bank, whether commercial or co-operative. | Photo credit: FRANCIS MASCARENHAS

Given that most UCB failures are attributable to smaller banks, if UCB licensing resumes, it may be prudent to only license large cooperative credit companies, the DP said.

“A large cooperative credit company will have a longer track record. It would have established its governance and put in place good management practices,” it said.

As a result, many of the risks (including cases related to governance failure or management fraud, especially at small UCBs; board directors and senior management at UCBs are often found to lack sufficient domain knowledge and expertise) cited in the arguments against resuming licensing will be mitigated.

Moreover, it may be advisable to make a start, learn from experience and take corrective action if necessary.

The central bank noted that the licensing of UCBs had been suspended since 2004 as it was found that a large number of the newly licensed UCBs became financially unhealthy within a short period of time.

Now it is seeking to open up licensing to new UCBs against the backdrop of positive developments in the sector (including larger companies, strong capital to risk-weighted assets/CRAR ratio, improved asset quality) over the past two decades.

The article notes that the governance standards applicable to a bank should ideally be agnostic to the structure of the bank, whether commercial or co-operative.

For commercial banks, the Companies Act, 2013 and SEBI LODR regulations provide the guardrails for professional and independent governance. It is imperative to ensure similar guardrails for UCBs.

“Therefore, statutory amendments may be required in the State Co-operative Society Acts and Multi-State Co-operative Societies Act, which provide for specific provisions in the laws in the areas of composition of boards of directors (to have professional and independent directors), functioning of boards of directors, shareholding (acquisition of more than five percent in a bank) etc. for societieswho have a banking license,” the newspaper said.

In view of the inflation adjustment, the DP recommended raising the minimum capital requirement. Therefore, the minimum capital requirement for a co-operative credit society should be ₹300 crore, as on March 31 of the previous financial year, to be eligible to apply.

Since five years may be too short a period to assess the performance of a cooperative society, active operations for at least ten years and a good financial track record of at least five years are desirable for a cooperative credit society to apply.

Progressive trend

In addition, society should show a positive and progressive trend in operational and financial parameters over the past five years.

To analyze the financials, the assessed CRAR (capital to risk-weighted assets ratio) should not be less than 12 percent and the Net NPA (non-performing assets) ratio should not be more than 3 percent at the time of granting the license to the eligible applicant.

The RBI has invited comments/feedback on this discussion paper and the last date for submitting comments on the DP is February 13, 2026.

As of March 31, 2025, the number of UCBs totaled 1,457, with total assets of ₹7.38 lakh crore and total deposits ₹5.84 lakh crore.

Published on January 13, 2026