RBI to resume 'on-tap' licensing of urban co-operative banks, review lending rate framework
New Delhi, August 5
The Reserve Bank of India on Wednesday announced a series of regulatory measures, including plans to resume licensing of Urban Co-operative Banks 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.
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.
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.
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
Reader Comments
Interesting to see the RBI focusing on the co-operative banking sector. The review of concentration risks for rural co-operative banks is long overdue - the 2008 norms are quite outdated. Hope the new regulations strike the right balance between supporting these banks and prudential oversight.
As someone who has seen urban co-operative banks support local entrepreneurs in my city, this is a welcome move. But please, RBI, ensure strict monitoring. We don't want any more scams like PMC Bank. The on-tap licensing is okay, but transparency should be the top priority. 👌
The rationalization of interest rate frameworks, specifically the MCLR and EBLR, is a much-needed step. There's so much discrepancy in how banks calculate interest and what day-count conventions they use. This will hopefully bring more clarity to borrowers and make monetary policy transmission smoother.
Finally some commonsense reform for co-operative banks! These local institutions are crucial for our economy, especially in semi-urban areas. I just hope the RBI also addresses the issue of multiple regulatory bodies for these banks. More clarity on that front would have been appreciated, but this is a step forward. 🇮🇳
A well-targeted package of measures. The review of interest rate guidelines and the push for standardizing day-count conventions will definitely benefit consumers. Good to see the RBI keeping pace with the evolving banking landscape while paying attention to the co-operative sector.
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