RBI Drafts On-Tap UCB Licensing: ₹10,000-Crore Deposits, ₹300-Crore Net Worth and 12% CRAR Proposed
Read Time:
The Reserve Bank of India has proposed reopening the door to new Urban Co-operative Bank licences through a detailed on-tap licensing framework, with stringent entry thresholds and governance conditions. The draft framework, released on August 5, 2026, is currently open for public comments until September 5, 2026.
The proposal is significant because RBI had effectively paused fresh UCB licensing in 2004 amid concerns over the financial health of the sector. RBI says the environment has since changed, citing improvement in the sector's financial position and stronger supervisory powers following amendments to the Banking Regulation Act in 2020.
Who would be eligible to apply
Under the draft, the applicant must be a credit co-operative society that has been in existence for at least 10 years. RBI proposes two major financial thresholds based on audited financial statements as at March 31 of the preceding financial year:
- Minimum deposits of ₹10,000 crore.
- Minimum net worth of ₹300 crore.
The applicant would also need to demonstrate a progressive financial track record over the previous five years, maintain a Capital to Risk-weighted Assets Ratio of at least 12 per cent, and keep net non-performing assets at or below 3 per cent. The relevant financial position would need certification from the statutory auditor.
Initial licences would focus on multi-state operations
RBI's draft proposes that, in the initial phase, eligible entities seeking a banking licence should have a geographically diversified business model across multiple states and should be registered under the Multi-State Co-operative Societies Act, 2002.
This is not a proposal for unrestricted conversion of every local credit society into a bank. The entry bar is deliberately high, reflecting RBI's objective of allowing only sufficiently large, financially sound and well-governed entities to enter the banking system.
Ownership and board governance conditions are central
The draft says no individual member should hold more than 5 per cent of the paid-up share capital. It also lays down fit-and-proper expectations for directors and proposes that directors should not simultaneously occupy executive positions that could undermine board independence.
Applicants would need to present a comprehensive business plan covering five-year financial projections, proposed branch expansion, products and services, target customers, technology architecture, risk management, human resources, priority-sector obligations, liquidity management and regulatory-reserve requirements.
For CAs and advisers assisting a prospective applicant, these requirements make the exercise closer to a full banking-licence readiness programme than a simple registration filing. Financial projections, capital planning, governance design, information systems and compliance controls would all need to align before an application is credible.
Shareholder approval and public notice would be required
The draft prescribes a structured member-approval process. A proposal to apply for a UCB licence would need approval by at least a two-thirds majority of shareholders, both by number and by value, at the relevant meeting.
The society would also need to publish notice of the meeting roughly one month in advance and issue the notice for three consecutive weeks in at least two newspapers, including a local-language newspaper. The application would be accompanied by the required shareholder resolution and a no-objection certificate from the Central Registrar of Co-operative Societies.
Applications would move through PRAVAAH and RBI screening
RBI proposes that applications be filed through its PRAVAAH portal using the prescribed Form IIIA. Applications would first be examined by an Internal Screening Committee comprising two Deputy Governors and two Executive Directors, and would subsequently be placed before the Committee of the Central Board.
If an application is rejected, the applicant would not be permitted to reapply for three years. The draft also provides for an appeal to RBI's Central Board within one month of rejection.
In-principle approval would carry a strict implementation timeline
An in-principle approval, if granted, would remain valid for 18 months. During that period, the applicant would be expected to complete the conditions required before the final banking licence, including technology and cybersecurity readiness, a fully operational core banking system, governance committees and necessary changes to bye-laws and organisational arrangements.
After the banking licence is issued, the bank would be required to commence business within six months. Missing these milestones could jeopardise the approval, so applicants would need a realistic implementation plan before seeking a licence.
What professionals should do before September 5
- Eligible societies: benchmark current deposits, net worth, CRAR and net NPA against the proposed entry thresholds.
- Boards and auditors: examine whether five-year financial trends and statutory-audit evidence would support an application.
- Governance teams: review ownership concentration, director eligibility and proposed committee structures.
- Technology and risk teams: estimate the work required for CBS, cybersecurity, risk management and regulatory reporting readiness.
- Industry bodies and advisers: submit comments to RBI by September 5 if any element of the proposed framework creates implementation or policy concerns.
RBI's draft does not simply reopen UCB licensing; it proposes a high-threshold, governance-heavy route intended for large and financially robust credit co-operative societies. The immediate action point is the September 5 consultation deadline. Entities that may qualify should use the draft as a readiness checklist covering capital, asset quality, ownership, board structure, technology and the business plan required for a credible banking-licence application.
Useful official links
Key takeaway
Time-sensitive RBI consultation with a near-term September 5 deadline and detailed entry, governance, audit, technology and capital requirements.
