- In a significant step towards simplifying regulations and fostering sustainable growth in the co-operative banking sector, the Reserve Bank of India (RBI) has unveiled the Draft Master Direction on Business Authorization for Co-operative Banks.
- This draft is open for public and stakeholder feedback until August 25, 2025, and aims to modernize and streamline the regulatory framework for Urban Cooperative Banks (UCBs).
- The guidelines outlined in this Direction will apply to all co-operative banks, which we’ll refer to as ‘banks’—including Primary (Urban) Co-operative Banks (UCBs), State Co-operative Banks (StCBs), and District Central Co-operative Banks (DCCBs).
- Under the new framework, UCBs will be categorized into four tiers based on their deposit sizes.
- Tier 1 consists of banks with deposits up to Rs 100 crore; Tier 2 includes those with deposits ranging from Rs 100 crore to Rs 1,000 crore; Tier 3 covers banks with deposits between Rs 1,000 crore and Rs 10,000 crore; and Tier 4 is for banks with deposits exceeding Rs 10,000 crore.
In a significant step towards simplifying regulations and fostering sustainable growth in the co-operative banking sector, the Reserve Bank of India (RBI) has unveiled the Draft Master Direction on Business Authorization for Co-operative Banks. This draft is open for public and stakeholder feedback until August 25, 2025, and aims to modernize and streamline the regulatory framework for Urban Cooperative Banks (UCBs).
The guidelines outlined in this Direction will apply to all co-operative banks, which we’ll refer to as ‘banks’—including Primary (Urban) Co-operative Banks (UCBs), State Co-operative Banks (StCBs), and District Central Co-operative Banks (DCCBs).
Under the new framework, UCBs will be categorized into four tiers based on their deposit sizes. Tier 1 consists of banks with deposits up to Rs 100 crore; Tier 2 includes those with deposits ranging from Rs 100 crore to Rs 1,000 crore; Tier 3 covers banks with deposits between Rs 1,000 crore and Rs 10,000 crore; and Tier 4 is for banks with deposits exceeding Rs 10,000 crore. This classification will rely on audited data as of March 31 each year, and banks that move up a tier will have up to two years to meet the relevant regulatory requirements.
A key feature of this proposal is the introduction of Eligibility Criteria for Business Authorization (ECBA), which banks must satisfy to open new branches or expand their services. These criteria include maintaining a minimum capital adequacy ratio, keeping net NPAs below 3%, showing profits in the last two financial years, and having no regulatory restrictions.
Additionally, full implementation of Core Banking Solutions (CBS) and having at least two professional directors on the board are mandatory. Failure to comply could result in regulatory action and a temporary halt on expansion.
The RBI has also suggested easing branch expansion rules. Banks that meet the ECBA criteria can open branches within their home district and in up to three other districts in the same state without needing prior approval from the RBI. Furthermore, Tier 3 and Tier 4 banks with a net worth above Rs 50 crore may expand into two new states each year, pending regulatory clearance.
The draft also lays out guidelines for establishing Extension Counters (ECs). These can be set up in places like schools, offices, hospitals, factories, or residential areas, as long as there isn’t a bank branch or another EC nearby. Each EC needs to be connected to a base branch within a 10 km radius and can provide limited services such as deposits, withdrawals, cashing drafts, and offering loans up to Rs 10 lakh.
Banks will have the green light to install ATMs, CRMs, and CDMs without needing prior approval from the RBI, but they can’t display third-party ads.
Additionally, banks can relocate, merge, or shut down branches without asking for permission first, as long as they inform the RBI afterward and follow local regulations. The introduction of Doorstep Banking Services is also on the table, provided there are proper risk controls and oversight from the board.
On the branding side, the RBI has mandated that all co-operative banks must clearly display their full registered name, including the term “co-operative bank,” on all signage, websites, apps, and communication materials. Abbreviations can only be used alongside the full name, and they must be in the same font size and prominence. If a bank wants to change its name, it will need a No Objection Certificate from the RBI, approval from the Registrar, and a new license.
To enhance compliance monitoring, all co-operative banks are required to report any changes to branches and infrastructure through the CISBI portal within seven days. Even if there are no changes, they must submit monthly NIL reports. Not reporting could lead to penalties and a three-year limit on expansion.
The draft also specifies the criteria for including Urban Co-operative Banks (UCBs) and State Co-operative Banks (StCBs) in the Second Schedule of the RBI Act. Eligible banks must adhere to ECBA norms, maintain Tier 3-level deposits for two years, and ensure a Capital to Risk-Weighted Assets Ratio (CRAR) that is 3% above the minimum requirement. Applications should be submitted through the PRAVAAH portal, and for StCBs, via NABARD.
The RBI is reaching out to all stakeholders for their thoughts through the ‘Connect 2 Regulate’ section on its website.
With these reforms, the central bank is looking to boost transparency, enhance governance, and help co-operative banks thrive in a modern financial landscape, all while ensuring they grow responsibly and efficiently.