🟡 DRAFT GUIDELINES — NOT YET IN FORCE
Published by the Reserve Bank of India, Department of Regulation, on August 05, 2026 (Press Release 2026-2027/816), for stakeholder consultation. This is a draft framework — it is not yet operative. Public comments are invited until September 05, 2026.
Quick Reference
Introduction
India stopped issuing fresh licenses to Urban Co-operative Banks (UCBs) in June 2004, in light of the deteriorating financial health of the sector at the time. RBI made clear at the time that new licenses would resume only once a comprehensive policy and legal framework for UCBs was in place, alongside measures to strengthen the sector's financial health.
Two decades on, RBI says the sector's health has meaningfully improved — helped by consolidation and the exit of weaker entities — and its own supervisory toolkit has been strengthened following the Banking Regulation (Amendment) Act, 2020. Against this backdrop, RBI floated a discussion paper on UCB licensing on January 13, 2026. Having reviewed the feedback received, it has now released a draft framework for granting fresh UCB licenses on an "on tap" basis — meaning eligible applicants can apply at any time, rather than only during a specified window.
The draft sets out who can apply, the financial and governance bars they must clear, the application procedure, RBI's internal decision-making process, and the conditions an applicant must satisfy even after receiving in-principle approval. It is open for public comment until September 05, 2026.
1. Preamble
RBI recaps that the 2004 pause on fresh UCB licenses was tied to the need for a comprehensive policy and legal framework, and a plan to improve sector health. It notes general improvement in the sector's financial condition through consolidation and closure of weak UCBs, and points to the enhanced regulatory and supervisory powers it gained under the Banking Regulation (Amendment) Act, 2020. RBI's January 13, 2026 discussion paper on UCB licensing fed into the framework now being proposed.
2. Guidelines
2.1 Eligibility
Credit Co-operative Societies must have been in existence for at least 10 years to apply.
2.2 Minimum Capital and Other Requirements
The applicant society must have a deposit size of at least ₹10,000 crore and a minimum net worth of at least ₹300 crore, based on audited financials as on March 31 of the previous financial year. Net worth is to be calculated per the Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
2.3 Registration
In this initial phase, RBI will consider societies demonstrating geographical diversification across multiple states. Accordingly, the society must be registered under the Multi-State Co-operative Societies Act, 2002 at the time of application.
2.4 Track Record
The society must show a positive, progressive trend in operating and financial parameters over the previous five years. As on March 31 of the previous financial year: CRAR must not be below 12% and the Net NPA ratio must not exceed 3%. Financials must be calculated per applicable RBI guidelines and certified by the statutory auditor.
2.5 Fit and Proper
📝 No member may hold more than 5% shareholding. RBI will independently assess the 'fit and proper' status of the Board, looking for sound credentials, integrity, and no history of default to a bank or financial institution. Directors must also meet the qualification criteria under the RBI (UCB – Governance) Directions, 2025 and the Banking Regulation Act, 1949 (AACS). No director may hold an executive role or a designation implying one.
2.6 Business Plan
Applicants must submit a detailed business plan stating their objectives and, in particular, how the society proposes to advance financial inclusion. The plan must include a project report covering business potential and viability, with underlying assumptions, five-year financial projections, target branch locations, proposed product lines, target clientele, technology usage, risk management, HR plans, priority sector compliance, CRR/SLR compliance, and a comprehensive plan to separate and transfer any non-banking activities. The plan must be realistic and viable.
❌ If the licensed bank deviates from its stated business plan, RBI may restrict its expansion, require a change in management, or impose other penal or regulatory measures.
2.7 – 2.8 Other Information and Regulatory Framework
Applicants may submit any other supporting information, and RBI may call for additional details as needed. Once licensed, the bank will be governed by the Banking Regulation Act, 1949 (AACS), the RBI Act, 1934, FEMA, 1999, the Payment and Settlement Systems Act, 2007, the Credit Information Companies (Regulation) Act, 2005, the DICGC Act, 1961, and other applicable statutes, directions, and guidelines issued by RBI and other regulators.
3. Procedure for Application
Applications from eligible societies will be accepted on an on-tap basis — there is no fixed application window. Under Rule 6 of the Banking Regulation (Cooperative Societies) Rules, 1966, applications must be filed in Form IIIA, accompanied by a No-Objection Certificate (NOC) from the Central Registrar of Co-operative Societies (CRCS) and a shareholder resolution.
💡 The conversion resolution needs approval by a two-thirds majority of shareholders, both in number and value, present at a meeting called for the purpose. Notice of that meeting must be published roughly a month in advance, once a week for three consecutive weeks, in at least two newspapers circulating in the relevant locality — with one publication in a locally understood language.
Completed applications, with all documents listed at Annex-1, may be submitted at any time to RBI through the PRAVAAH portal, addressed to the Chief General Manager, Department of Regulation, Reserve Bank of India, Central Office, 12th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai – 400001.
4. Procedure for Decisions and Appeal
- Initial screening — RBI checks prima facie eligibility; non-conforming applications are returned.
- Director due diligence — carried out per the fit-and-proper norms in para 2.5.
- Inspection — RBI verifies the society's financials and submitted information on-site.
- Committee evaluation — an Internal Screening Committee (ISC), comprising two Deputy Governors and two Executive Directors, evaluates the application and recommends it to the Committee of the Central Board (CCB) for a final decision on 'in-principle approval'.
- Decision communicated — RBI's decision is final. Rejected applicants cannot reapply for a banking license for three years from the date of rejection, but may appeal to the Central Board of Directors within one month of receiving the communication.
⚠️ In-principle approval is valid for 18 months from the date it is granted, and lapses automatically thereafter if not converted into a full license.
RBI stresses it will take a cautious, selective approach — licenses will go only to societies that meet the stipulated (and any additional) requirements, with an impeccable track record and strong governance, customer service, and efficiency standards. Meeting the eligibility criteria does not guarantee a license.
5. Conditions After Grant of In-Principle Approval
During the validity of the in-principle approval, the entity must fulfil the following before a final banking license is issued:
✅ Operational and governance conditions:
- Necessary IT and cybersecurity infrastructure per extant RBI guidelines
- Full Core Banking Solution (CBS) implementation per applicable banking standards
- Formation of Board Committees, a Board of Management, and appointment of key officers per the RBI (UCB – Governance) Directions, 2025 and the Banking Regulation Act, 1949 (AACS)
✅ Required bye-law amendments:
- Prohibition on admitting any other co-operative society as a member
- Board/Committee composition and tenure aligned to the Banking Regulation Act, 1949 and RBI directions
- No director may simultaneously sit on the board of another bank or credit society
- RBI retains the right to assess the fitness and propriety of Board/senior management and require changes as needed
- Any further bye-law amendments will require prior NOC from RBI
❌ If adverse features regarding directors, the society, or their associated entities come to light after in-principle approval, RBI may impose additional conditions or withdraw the approval altogether.
Once RBI verifies the compliance report confirming these conditions are met, the society will be issued a full banking license. It must then commence banking business within six months of the license being granted, and satisfy any further requirements specified in the license letter — such as approaching DICGC for deposit insurance cover within the prescribed timeline.
Public Comments on the Draft
⚠️ Per Press Release 2026-2027/816, comments on the draft guidelines are invited from the public and stakeholders till September 05, 2026. Submit via the 'Connect 2 Regulate' section on RBI's website, or by post to the Chief General Manager, Department of Regulation, Registration and Licensing Section (Co-operative Banks), 12th Floor, Central Office, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001, or by email with the subject line "Feedback on Draft Guidelines for 'on tap' Licensing of Urban Co-operative Banks".
Annex-1: Documents Required With an Application
Pre-2004 Pause vs. Proposed On-Tap Regime
Compliance Checklist for Aspiring Applicants
☑ Confirm registration status — society must be registered under the Multi-State Co-operative Societies Act, 2002, and in existence for 10+ years.
☑ Verify financial thresholds — deposit size ≥ ₹10,000 crore; net worth ≥ ₹300 crore, as on March 31 of the previous FY.
☑ Check track record ratios — CRAR ≥ 12% and Net NPA ≤ 3%, certified by the statutory auditor.
☑ Review shareholding — no member above 5%; prepare a reduction action plan if any shareholder exceeds this threshold.
☑ Prepare fit-and-proper declarations for all Board members and Key Personnel per Para 22 of the UCB Governance Directions, 2025.
☑ Draft a five-year business plan covering financial projections, branch expansion, technology, risk management, and priority sector compliance.
☑ Assemble Annex-1 documentation, including five years of audited financials and the CRCS NOC, before filing Form IIIA via the PRAVAAH portal.
☑ Submit comments on the draft, if relevant, by September 05, 2026 via 'Connect 2 Regulate', post, or email.
CorpLawUpdates Analysis
The headline here is simple but significant: RBI is proposing to reopen UCB licensing for the first time since 2004. That alone makes this one of the more consequential co-operative banking developments in recent years, even though it arrives as a draft rather than a final framework.
What stands out in the eligibility design is how deliberately narrow it is. A ₹10,000 crore deposit base and ₹300 crore net worth threshold, combined with a mandatory Multi-State Co-operative Societies Act registration, effectively limits the initial applicant pool to a small number of large, well-established, geographically diversified credit societies. This reads less like a broad reopening of UCB licensing and more like a controlled pilot aimed at converting a handful of the strongest multi-state credit societies — the kind least likely to repeat the governance failures that triggered the 2004 pause.
The bigger compliance challenge for any applicant will likely be the fit-and-proper and governance conditions rather than the financial thresholds. The prohibition on directors holding executive roles, the 5% shareholding cap, and RBI's continuing right to demand Board/management changes even after in-principle approval all signal that RBI intends to keep a tight supervisory grip through conversion and well beyond — not just at the licensing gate.
Practitioners advising credit co-operative societies should watch two things closely: first, whether the ₹10,000 crore/₹300 crore thresholds are recalibrated after the comment period, since they will determine exactly how many societies can realistically apply; and second, how RBI treats the "non-banking activities separation" requirement in the business plan, which could prove operationally complex for large diversified societies. Comments close September 05, 2026 — a relatively short window given the structural significance of the proposal.
Source Documents: Draft Guidelines for 'on tap' Licensing of Urban Co-operative Banks; Press Release 2026-2027/816
Issuing Authority: Reserve Bank of India — Department of Regulation
Date Issued: August 05, 2026
Signatory (Press Release): Brij Raj, Chief General Manager
Comment Deadline: September 05, 2026
This article is for informational and educational purposes only and does not constitute legal or regulatory advice. Verify with primary regulatory sources before acting.
