The Reserve Bank of India (RBI) has taken a significant step toward potentially reopening the licensing window for urban co-operative banks (UCBs) after more than two decades, according to a discussion paper released by the central bank. Since 2004, the RBI had stopped issuing fresh licences for new UCBs due to concerns over the financial instability and unsound practices of many lenders in the sector.

Key Highlights

• RBI explores resuming urban co-operative bank licences after a 22-year pause.
• Central bank seeks public feedback on eligibility norms and capital requirements.

In its discussion paper titled “Licensing of Urban Co-operative Banks (UCBs)”, the RBI has invited public comments on whether now is the right time to resume licensing and what eligibility norms should apply if the process is restarted. Stakeholders have until February 13, 2026 to share their views.

The proposal suggests that any new entrants should meet robust regulatory criteria, including a minimum capital requirement of ₹300 crore and other financial safeguards to promote stability. The paper also explores broader eligibility conditions and governance standards to ensure that future UCBs are well-managed and financially sound.

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Urban co-operative banks play a key role in providing banking services to community members in urban and semi-urban areas, often supporting small businesses and local credit needs. The RBI’s move reflects confidence that the sector has evolved and could support new, well-regulated institutions, potentially expanding financial inclusion and competitiveness in the cooperative banking space.

The consultation is part of the RBI’s effort to modernise the regulatory framework and carefully consider how best to balance innovation and risk in India’s cooperative banking sector.