Govt, RBI boost cooperative banks' health, expand credit access

The Centre and RBI have rolled out measures to strengthen cooperative banks, including allowing Urban Cooperative Banks to open new branches, raising their housing loan limits, and increasing director tenures to improve governance and credit flow.

The Government of India and the Reserve Bank of India (RBI) have taken various measures to strengthen cooperative banks' financial health, governance and digital inclusion along with enhancing deposit security, credit availability and prudent regulation, said Minister of State in the Ministry of Finance, Pankaj Chaudhary, in Rajya Sabha on Tuesday.

Boosting Business and Credit for UCBs

As part of efforts to support business expansion, Urban Cooperative Banks (UCBs) have been permitted to open new branches, enabling wider outreach and improved customer access. In a move aimed at boosting credit flow, the permissible housing loan exposure of UCBs has been raised to 25 per cent of their total loans and advances, from the earlier limit of 10 per cent.

Improving Governance

To improve governance continuity, amendments to the Banking Regulation Act have increased the maximum tenure of directors of cooperative banks from eight years to ten years, allowing experienced boards to provide longer-term oversight.

Promoting Digital Inclusion

To promote digital payments and financial inclusion, the licensing fee for onboarding cooperative banks to the Aadhaar Enabled Payment System (AePS) has been reduced, lowering entry barriers for smaller institutions.

New Institutional Support Framework

The government has also strengthened institutional support for cooperative banks through the creation of new entities. The National Urban Co-operative Finance and Development Corporation Limited (NUCFDC) was established as a non-deposit-taking, non-banking financial company to serve as an umbrella organisation for UCBs, providing information technology infrastructure and operational support. For rural institutions, a Shared Services Entity (SSE) named Sahakar Sarthi has been established to deliver common technological services to Rural Cooperative Banks, improving efficiency and reducing operational costs.

Strengthening Customer Grievance Redressal

Further strengthening customer protection, Rural Cooperative Banks have been brought under the RBI's Integrated Ombudsman Scheme, providing customers with access to a unified grievance redressal mechanism.

Ensuring Deposit Safety

On deposit safety, the Deposit Insurance and Credit Guarantee Corporation (DICGC) continues to insure deposits of all cooperative banks up to Rs 5 lakh per depositor per bank, including both principal and interest, providing enhanced confidence to depositors.

Expanding Priority Sector Lending

Recently, it was also announced that loans sanctioned by banks to the National Cooperative Development Corporation (NCDC), as of January 19, 2026, for on-lending to cooperative societies, are eligible for classification as priority sector lending under the respective categories. (ANI)

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