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Only existing multi-state Credit Co-op Societies with at least 10 years of operations, having a deposit size of at least ₹10,000 crore and minimum net worth of at least ₹300 crore are eligible to apply
The financial health of the UCBs has improved over the years generally and also through consolidation in the sector and closure of many weak UCBs
The Reserve Bank of India (RBI) plans to re-start issuing fresh licences for setting up Urban Co-operative Banks (UCBs) after a gap of two decades. However, the eligibility norms are tight. Only existing multi-state Credit Co-operative Societies (CCS) with at least 10 years of operations, having a deposit size of at least ₹10,000 crore and minimum net worth of at least ₹300 crore, can apply. With banking being a highly leveraged business, the RBI said it will adopt a cautious approach in licensing.As per the ‘Draft Guidelines for ‘on tap’ Licensing of UCBs,’ a CCS must demonstrate a positive and progressive trend in operating and financial parameters in the previous five years. The CRAR (capital to risk-weighted assets ratio) should not be less than 12 per cent and the Net NPA (non-performing asset) ratio should not be more than 3 per cent as on March 31 of the previous financial year of application.The resolution for conversion of a CCS to bank has to be approved by the shareholders and passed by a majority representing two-thirds of the shareholders, both in number and value, present in person, at a meeting called for the purpose.Applicants whose applications are rejected will not be eligible to make an application for a banking licence for three years from the date of that decision. In light of the deteriorating financial health of the urban co-operative banking sector, the RBI decided in June 2004 to consider issuance of fresh licences only after a comprehensive policy on UCBs, including an appropriate legal and regulatory framework for the sector, is put in place, and a policy for improving the financial health of these banks is formulated.The financial health of the UCBs has improved over the years generally and also through consolidation in the sector and closure of many weak UCBs. Further, the regulatory and supervisory powers of the RBI have been strengthened following the Banking Regulation (Amendment) Act, 2020.Fit and proper criteriaRBI will assess the ‘fit and proper’ status of the Board of Directors. They should have a past record of sound credentials and integrity and should not have defaulted to a bank or any other financial institution in the past. No society member can have a shareholding of more than 5 per cent in a CCS.Further, the directors of the Board shall be qualified to be on the Board as per Reserve Bank of India (Urban Co-operative Banks – Governance) Directions, 2025 and Banking Regulation Act, 1949 (As Applicable to Co-operative Societies). No director on the Board of the entity shall discharge any executive role or have a designation implying as such in the entity.Applicants’ detailed busiess plan, which needs to be submitted along with their application, has to state the objectives and address how the society proposes to achieve these objectives especially related to financial inclusion.The business plan should comprise a project report covering business potential and viability. The report should include the underlying assumptions, financial projections for five years, target locations for branch openings, proposed product lines, target clientele, technology usage, risk management, plans relating to human resources, priority sector compliance, compliance with prudential norms on Cash Reserve Ratio /Statutory Liquidity Ratio, comprehensive plan to separate and transfer all non-banking activities, etc.“The business plan submitted by the applicant should be realistic and viable. In the event of deviation from the stated business plan after the issuance of a license, the RBI may consider restricting the bank’s expansion, effecting a change in management, and imposing other penal/regulatory measures as may be necessary,” per the guidelines.Screening processRBI sais if the applicant is found to be in compliance with the eligibility requirements, an inspection of the society will be carried out to verify the financials and other information submitted by the bank.Thereafter, an Internal Screening Committee (ISC) in Reserve Bank consisting of two Deputy Governors and two Executive Directors, will evaluate the application. The committee’s recommendations will be presented to the Committee of the Central Board (CCB) of the RBI for a final decision on issuing ‘in-principle approval.’Licenses shall be issued on a very selective basis to those co-operative societies that conform to the stipulated requirements, have an impeccable track record, and are likely to conform to the best standards of governance, customer service, and efficiency. Therefore, it may not be feasible for the RBI to issue licenses to all the applicants meeting the eligibility criteria prescribed above.Published on August 5, 2026
