New Delhi
The Reserve Bank of India (RBI) is likely to reopen the licensing window for urban co-operative banks (UCBs), potentially ending a two-decade freeze on the entry of new institutions into the sector, according to a media report.
The move is expected to mark a significant development for India’s co-operative banking ecosystem, as the central bank has not issued fresh licences for urban co-operative banks since 2004. The reported decision follows the RBI’s discussion paper released in January this year, which sought public and industry feedback on whether new UCB licences should be granted again.
According to the report, the proposal has received encouraging responses from stakeholders. Industry participants have broadly supported the idea of allowing new entrants, although some have recommended lowering the proposed minimum capital requirement of Rs 300 crore to make it easier for eligible institutions to enter the sector.
The report noted that regulatory oversight and supervisory standards for urban co-operative banks have improved considerably over the past two decades. Enhanced monitoring mechanisms and stronger governance frameworks are believed to have increased the RBI’s confidence in reconsidering the licensing process.
In its discussion paper, the RBI highlighted several advantages of permitting new urban co-operative banks. These include strengthening financial inclusion, improving access to banking services, enhancing the financial health of the co-operative banking sector and leveraging support from the sector’s umbrella organisation in areas such as technology, capital mobilisation and knowledge sharing.
At the same time, the central bank acknowledged several challenges facing the sector. These include difficulties in raising capital, limited investor incentives under the existing face-value share framework, governance-related concerns, technological constraints and the relatively modest contribution of urban co-operative banks to the broader banking system.
Despite these challenges, the sector remains substantial in size. As of March 2025, India had 1,457 urban co-operative banks with total assets of Rs 7.38 lakh crore and deposits amounting to Rs 5.84 lakh crore. The proposed reopening of licensing could provide fresh momentum to the sector and expand banking outreach across urban areas.
