Reopening of Licensing for Urban Co-operative Banks (UCBs)

The Reserve Bank of India (RBI) is considering reopening the licensing window for new urban co-operative banks (UCBs) after a two-decade hiatus. The focus is on granting licenses to large co-operative credit societies.

Reasons for Reopening Licensing

• Track Record: Large co-operative credit societies have a longer operational history, establishing governance and management practices. 
• Regulation: Credit societies are regulated by the Registrar of Co-operative Societies and are limited in their banking services. 

Past Challenges with UCBs

• Financial Unsoundness: Many newly licensed UCBs previously became financially unstable quickly. 
• Governance Risks: Issues include capital raising challenges, lack of incentives for investors, and governance failures. 

RBI Recommendations for Licensing

• Eligibility Criteria: A minimum operational period of 10 years with a financially sound track record of at least five years. 
• Financial Standards: Assessed capital to risk-weighted assets ratio (CRAR) should not be less than 12%, and net non-performing assets (NNPA) should not exceed 3%. 

Current Status of UCBs

• Distribution: There were 1,457 UCBs as of March 31, 2025, with a majority being tier 1 banks. 
• Deposits: 52% of UCBs held deposits below Rs 100 crore, while 7% held deposits above Rs 1000 crore. 
• Financials: Total assets were Rs 7.38 lakh crore, and total deposits were Rs 5.84 lakh crore as of March 31, 2025. 

Asset Quality

• GNPA Ratio: The gross non-performing assets ratio was 6.2% as of March 31, 2025. 
• Provisioning Coverage Ratio: Increased to 90.1% from 57.7% in 2015.