Licensing for Urban Co-operative Banks (UCBs)

About Licensing for Urban Co-operative Banks (UCBs)

• The Reserve Bank of India (RBI) has proposed to restart issuing fresh licences for setting up Urban Co-operative Banks (UCBs) after a gap of nearly 20 years.
• The proposal has been released through the Draft Guidelines for ‘On-Tap’ Licensing of UCBs.
• Eligibility Criteria
  • Only existing Multi-State Credit Co-operative Societies (CCSs) are eligible to apply.
  • The applicant society must have been operational for at least 10 years.
  • It must have deposits of at least ₹10,000 crore.
  • It must have a minimum net worth of ₹300 crore.
  • The society must have shown a positive and progressive trend in its financial and operational performance during the previous five years.
• Financial Requirements
  • The Capital to Risk-Weighted Assets Ratio (CRAR) should not be less than 12%.
  • The Net Non-Performing Assets (Net NPA) ratio should not exceed 3% as on March 31 of the financial year preceding the application.
• Approval for Conversion
  • The proposal to convert a Credit Co-operative Society into a bank must be approved by the shareholders.
  • The resolution must be passed by a two-thirds majority of shareholders, both in number and value, present in person at the meeting.
• Restriction on Reapplication: If an application for a banking licence is rejected, the applicant cannot apply again for three years from the date of rejection.
• Governance and ‘Fit and Proper’ Criteria
  • The RBI will assess whether the Board of Directors meets the ‘fit and proper’ criteria.
  • Directors must have a record of integrity and sound credentials.
  • Directors should not have defaulted on loans from any bank or financial institution.
  • No member of the society can hold more than 5% shareholding in the Credit Co-operative Society.
  • Directors must satisfy the eligibility requirements under the RBI (Urban Co-operative Banks – Governance) Directions, 2025 and the Banking Regulation Act, 1949.
  • No director should perform an executive role or hold a designation implying executive responsibilities in the society.
• Business Plan Requirements
  • Applicants must submit a detailed business plan along with the application.
  • The business plan must explain the objectives of the proposed bank and how it will achieve them, particularly in the area of financial inclusion.
• Penalties: If a bank deviates from its approved business plan after receiving a licence, the RBI may:
  • Restrict the bank’s expansion.
  • Change its management.
  • Impose other regulatory or penal measures.
  • Screening Process