Ministry pushing RBI to open licences for more urban cooperative banks: Secretary Ashish Kumar Bhutani
The Ministry of Cooperation has been engaging with the Reserve Bank of India to secure fresh licences for setting up new Urban Cooperative Banks (UCBs)
A senior Ministry official stated that continuous consultations are underway with the RBI on the licensing question and on easing regulatory conditions for cooperative banks
The discussion follows the RBI's own draft proposal to resume UCB licensing after licensing had been kept in abeyance since 2004
Draft norms under discussion include a proposed minimum share capital requirement exceeding Rs 300 crore for new UCBs, which cooperative sector representatives consider high relative to the sector's traditional scale
RBI's Licensing Moratorium on UCBs (2004) and Its Proposed Reversal
The RBI stopped issuing fresh licences for Urban Cooperative Banks in 2004 after finding that a large number of newly licensed UCBs became financially weak soon after commencing operations. The moratorium has effectively lasted over two decades, even as the RBI periodically strengthened UCBs' capital and governance norms. The RBI's move to draft fresh licensing guidelines represents the first structured reopening of this window.
Key Details
- Licensing abeyance in effect since 2004, following supervisory concerns about the viability of newly licensed cooperative banks
- The RBI's failure of Punjab and Maharashtra Cooperative (PMC) Bank in 2019 (a large, systemically visible UCB) intensified scrutiny of the sector's governance and capital adequacy, even though it did not itself trigger the original 2004 freeze
- Draft 2025-26 guidelines reportedly propose a minimum share capital threshold above Rs 300 crore for new UCB licences — far higher than legacy norms — reflecting the RBI's preference for financially resilient entrants
The Ministry's push for more licences is occurring precisely as the RBI is drafting the terms on which any new licensing will resume, making the minimum-capital threshold the central point of negotiation between the sectoral ministry and the regulator.
Four-Tiered Regulatory Framework for UCBs (2022)
In December 2022, the RBI replaced the earlier two-tiered classification of UCBs with a four-tiered, deposit-size-based regulatory framework, aimed at balancing the cooperative character of smaller UCBs against the prudential needs of larger, more complex ones.
Key Details
- Tier 1: unit and salary-earners' UCBs (any deposit size) and other UCBs with deposits up to Rs 100 crore — minimum CRAR (Capital to Risk-weighted Assets Ratio) of 9%
- Tier 2: deposits above Rs 100 crore up to Rs 1,000 crore
- Tier 3: deposits above Rs 1,000 crore up to Rs 10,000 crore
- Tier 4: deposits above Rs 10,000 crore
- Tier 2, 3, and 4 UCBs must maintain a minimum CRAR of 12%, higher than Tier 1
Any newly licensed UCB would enter this tiered structure at Tier 1, meaning the debate over minimum entry capital directly determines how viable new entrants would be under the existing prudential framework.
Banking Regulation (Amendment) Act, 2020 — Bringing Cooperative Banks Under Fuller RBI Supervision
The Banking Regulation (Amendment) Act, 2020 extended the RBI's supervisory powers over cooperative banks, including urban and multi-state cooperative banks, closing supervisory gaps that had been exposed by cooperative bank failures.
Key Details
- Extended RBI's power to supersede the board of directors of all cooperative banks (previously limited to multi-state cooperative banks) for up to five years, appointing an administrator in the interim
- Empowered the RBI to prepare schemes of reconstruction or amalgamation for cooperative banks without a prior moratorium requirement
- Cooperative banks remain under a structure often described as "dual control": the RBI regulates banking functions (licensing, capital, prudential norms) while the Registrar of Cooperative Societies (state or central, depending on whether the bank is single-state or multi-state) regulates the cooperative-society aspects (management elections, membership, by-laws)
The Ministry of Cooperation's advocacy for new UCB licences sits within this dual-control structure — even if the RBI grants more licences, cooperative governance dimensions remain under the Registrar of Cooperative Societies, illustrating the shared but distinct jurisdiction the 2020 Act did not fully collapse.
National Urban Cooperative Finance and Development Corporation (NUCFDC) — The Sector's Umbrella Organisation
The NUCFDC was set up as an "umbrella organisation" for the UCB sector, intended to provide liquidity support, technology, and compliance assistance to individual UCBs that individually lack scale.
Key Details
- Registered with the RBI on February 8, 2024, as a non-banking finance company functioning as a self-regulatory organisation for UCBs
- Required to raise paid-up capital of Rs 300 crore within one year of registration (by February 7, 2025)
- Functions as a sector-level support institution rather than a regulator — regulatory and licensing authority for UCBs continues to rest with the RBI
The Ministry's push for more banking licences and the NUCFDC's role as a support institution reflect two complementary strategies for the same underlying policy goal — strengthening and expanding the urban cooperative banking sector under the post-2021 Ministry of Cooperation's mandate.
Ministry of Cooperation — Institutional Context
The Ministry of Cooperation was created in July 2021 as a separate, dedicated ministry to provide administrative and legal focus to India's cooperative sector, which was previously handled within the Ministry of Agriculture.
Key Details
- First standalone central ministry dedicated to the cooperative movement since Independence
- Cooperative societies are a State List subject (Entry 32, List II, Seventh Schedule) for single-state cooperatives; multi-state cooperative societies fall under the Multi-State Co-operative Societies Act, 2002, a central law
- The 97th Constitutional Amendment Act, 2011 inserted Article 43B (a Directive Principle promoting cooperative societies) and Part IXB (Articles 243ZH-243ZT) governing cooperative societies' constitution, elections, and audits
The Ministry's engagement with the RBI on UCB licensing reflects the constitutional overlap between a state-list subject (cooperatives) and a Union-regulated activity (banking, under Entry 45, List I), which is precisely why licensing decisions require RBI concurrence even though cooperative societies are otherwise state-administered.
- UCB fresh licensing has been in abeyance since 2004
- RBI's revised UCB regulatory framework: four tiers based on deposit size, effective from December 1, 2022
- Minimum CRAR: 9% for Tier 1 UCBs; 12% for Tier 2, 3, and 4 UCBs
- Draft new licensing norms reportedly propose a minimum share capital above Rs 300 crore for new UCBs
- Banking Regulation (Amendment) Act, 2020 extended RBI's board-supersession power (up to 5 years) to all cooperative banks
- NUCFDC registered with RBI on February 8, 2024; required paid-up capital of Rs 300 crore by February 7, 2025
- Ministry of Cooperation established: July 2021
- 97th Constitutional Amendment Act (2011): inserted Article 43B and Part IXB (Articles 243ZH-243ZT) on cooperative societies