With rapid urbanisation, there is a need for on tap licensing of urban co-operative banks (UCBs) to cater to the banking service requirements of the marginalised sections, according to Satish Marathe, Director, Central Board, Reserve Bank of India (RBI).

He observed that when licensing for universal banks and small finance banks is on tap, entities intending to start UCBs, too, should get the benefit of on tap licensing.

“So, RBI should bring in norms (relating to eligibility and fit and proper criteria, capital requirement, governance, technology) which will give them comfort.

“There can be no compromise on governance or technology or capital. These are the fundamentals for successfully running a bank,” said Marathe.

He underscored that the Banking Regulation (Amendment) Act, 2020, has bolstered RBI’s regulatory and supervisory powers to exercise control over the UCB sector.

The amendments have addressed the concerns around dual regulation (by RBI and the State Government), narrowed regulatory arbitrage between commercial banks and co-operative banks, and allowed RBI to reconstruct or amalgamate a bank, with or without implementing a moratorium, with the approval of the Central Government.

The last time an UCB was licensed was almost two decades back. As of March-end 2022, there were 1,514 UCBs across the country with deposits and advances aggregating ₹5,26,021 crore and ₹3,14,741 crore, respectively, per RBI data,

“There are about 18,000-20,000 new urban centres coming up across the country.…The high powered committee report on UCBs has assessed that of the total borrower accounts of scheduled UCBs and non-scheduled UCBs, about 53 per cent and 94 per cent, respectively, have loans up to Rs 5 lakh. 

“Keeping the money lender away is a big service that UCBs are doing. So, there is a need for this category of banks to grow,” Marathe emphasised.

According to the National Commission on Population, the urban population in the country, which was 31.8 percent in 2011, is expected to increase to 38.2 percent by 2036.

The urban growth would account for about three-fourth (73 per cent) of total population increase by 2036.

Of the total population increase of 31.1 crore during 2011-2036 in the country, the share of increase in urban population is expected to be 21.8 crores.