New Delhi: In a significant move to provide operational flexibility and expansion opportunities to financially strong urban cooperative banks (UCBs), the Reserve Bank of India (RBI) on Monday released a draft proposing harmonised eligibility criteria for business authorisations, permissions, and approvals.
The proposed framework, titled the Master Direction – Business Authorization for Co-operative Banks (Directions), 2025, aims to replace existing norms with a more streamlined and tier-sensitive structure.
Large UCBs May Operate Across States
According to the draft, Tier 3 and Tier 4 UCBs – those with deposits between ₹1,000 crore and ₹10,000 crore (Tier 3) and above ₹10,000 crore (Tier 4) – that fully comply with the proposed Eligibility Criteria for Business Authorisation (ECBA) and have a minimum assessed net worth (ANW) of ₹50 crore may apply for approval to extend their area of operation beyond their home state.
Such expansion will be limited to a maximum of two additional states per financial year, and only if the UCB has the capital headroom to open at least five branches in each of the proposed states, the RBI said.
Local Expansion Without RBI Nod
Under the new draft rules:
- A UCB may extend operations to the entire district of registration without prior RBI approval.
- It may also expand into up to three additional districts within its state of registration – beyond its district of origin – without requiring RBI permission, provided it meets ECBA standards.
The deadline for public and stakeholder comments on the draft directions is August 25, 2025.
What Qualifies as ECBA Compliance?
To be considered fully compliant with ECBA, a UCB must meet the following criteria–
- Maintain regulatory minimum Capital to Risk-Weighted Assets Ratio (CRAR)
- Have net NPAs not exceeding 3%
- Report net profits in the past two financial years
Additionally, banks must assess their ECBA compliance annually, based on audited financials as of March 31 of the preceding fiscal year. This status must be placed before the Board within 30 days of adoption of the audit report.
A Tiered Regulatory Approach
The RBI currently categorises UCBs into four tiers based on deposit size-
- Tier 1 & 2: UCBs with deposits below ₹1,000 crore
- Tier 3: ₹1,000 crore to ₹10,000 crore
- Tier 4: Above ₹10,000 crore
The draft framework aims to incentivize well-governed and financially sound UCBs by granting them greater autonomy and regional reach, thereby supporting inclusive financial services without compromising regulatory oversight.
