The RBI will resume 'on-tap' licensing for Urban Co-operative Banks, review concentration risk norms for rural co-operative banks, and rationalise guidelines for interest rates on advances to ensure uniformity and transparency.
The Reserve Bank of India (RBI) on Wednesday announced a series of regulatory measures, including plans to resume licensing of Urban Co-operative Banks (UCBs) on an 'on-tap' basis, review concentration risk norms for rural co-operative banks and rationalise guidelines governing interest rates on advances. The announcements were made as part of the RBI's Statement on Developmental and Regulatory Policies released alongside the monetary policy decision.
UCB Licensing to Resume
The central bank said a discussion paper on licensing of UCBs was published for stakeholder feedback on January 13, 2026, following a two-decade pause in issuing fresh licences.
After analysing the feedback received from stakeholders, the RBI has decided to resume licensing of UCBs on an 'on-tap' basis. The draft guidelines for the new licensing framework will be issued shortly for stakeholder consultation.
Review of Norms for Rural Co-operative Banks
The RBI also proposed a review of prudential norms governing concentration risk management for Rural Co-operative Banks (RCBs). These norms are currently governed by Credit Monitoring Arrangement instructions issued in 2008.
The central bank said the banking sector, including the co-operative banking segment, has undergone significant expansion and changes since then. The proposed review seeks to support the development of a vibrant co-operative sector while addressing prudential concerns arising from concentrated lending. Draft Amendment Directions will be issued for wider stakeholder consultation.
Rationalisation of Interest Rate Guidelines
Separately, the RBI proposed to rationalise its regulatory framework on interest rates on advances for all regulated entities on a principle-based basis.
The proposed changes seek to harmonise guidelines across regulated entities while maintaining proportionality, address operational aspects of the Marginal Cost of Funds-based Lending Rate (MCLR) and External Benchmark Lending Rate (EBLR) frameworks, and standardise divergent market practices related to interest charging, including day-count conventions and benchmark reset dates.
According to the RBI, the measures are aimed at ensuring greater uniformity and transparency in loan pricing, strengthening monetary policy transmission and bolstering consumer protection. Draft directions will be issued shortly for public comments.
The regulatory announcements came during the RBI Governor's address on Wednesday following the Monetary Policy Committee's (MPC) meeting. (ANI)
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