- RBI is likely to approve fresh licenses for urban co-operative banks after stopping in 2004
- Improved regulatory standards and supervision have increased RBI's comfort with UCB licensing
- RBI received positive feedback on its discussion paper about reviving UCB licenses
The Reserve Bank of India (RBI) is likely to approve granting fresh licenses to urban co-operative banks (UCBs), a practice it had stopped in 2004, sources aware of the development say.
Since 2004, the regulatory standards and supervision on UCBs have improved significantly, granting comfort to the central bank to revive co-op bank licenses.
The development comes after the RBI launched a discussion paper in January on whether it should revive granting UCB licenses. Sources say the RBI has received positive feedback on the discussion paper, with the industry proposing to lower the minimum capital requirement from proposed Rs 300 crore.
The discussion paper listed pros and cons of issuing new UCB licenses. Pros included: 1) Upgraded supervisory standards on UCBs 2) Promoting financial inclusion 3) Improving financial health of UCBs and 4) UCB sector umbrella organisation handholding smaller UCBs for capital, knowledge and technology. Cons, meanwhile, included: 1) Capital raise issues, 2) The principle of entry and exit of shareholders at face value not giving any incentive to investors 3) Contribution of UCBs being small 4) Governance issues and lack of depth in board, technology infrastructure.
As on March 2025, 1,457 UCBs existed with assets of Rs 7.38 lakh crore, and total deposits of Rs 5.84 lakh crore.
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