Tweak sought in capital norms for urban co-operative bank licence

New Delhi: The Reserve Bank of India is evaluating requests to lower the minimum capital requirement to ₹200 crore for co-operative credit societies seeking an urban co-operative bank (UCB) licence, people familiar with the matter said. The central bank had proposed a ₹300 crore threshold in a discussion paper issued in January.

Other suggestions under consideration include allowing financially sound societies with a five-year track record to merge with existing UCBs, the people said.

"We are hopeful the central bank will look favourably at these suggestions as they align with current economic realities and will help UCBs bring more people into the formal banking system," a bank executive said.

Industry bodies have also sought raising the aggregate ceiling on unsecured advances to members to 25% of a UCB's total loans, from the revised 20% cap.

In guidelines issued in February, the RBI said any additional unsecured advances beyond this limit would be allowed only for priority sector-eligible loans, subject to a ceiling of ₹50,000 per borrower.

According to latest available data, co-operative banks accounted for 5.4% of total banking sector deposits and UCBs for 3.1% as of March 31, 2025. Their share in loans stood at 5.6% and 3.8%, respectively.

In its January discussion paper, the RBI said five years may be too short to assess a co-operative society's performance. "Hence, active operations for at least 10 years and a good financial track record of at least five years are desirable" for applying, it said.

An email sent to the RBI did not receive a response till press time Tuesday.

"We have also sought a ₹5 lakh ceiling on advances to nominal members for tier-3 and tier-4 UCBs," another UCB executive said.

Earlier this year, the RBI raised the lending limit to nominal members for purchase of consumer durables to ₹2.5 lakh per borrower across all UCBs. "The RBI may also consider extending the tenure of such loans to up to five years from the current one year," the executive said. "The above amendments shall come into force from October 1, 2026, or an earlier date when adopted by a UCB in their entirety," the central bank said in its February notification.