RBI Tightens Reins: 78 Urban Cooperative Banks Lose Licenses Since 2014, Maharashtra Hit Hardest; Details

The Reserve Bank of India (RBI) has cancelled the licenses of 78 Urban Cooperative Banks (UCBs) since 2014, with nearly half of these closures occurring in Maharashtra. This regulatory action was detailed in a statement by Pankaj Chaudhary, Union Minister of State for Finance, presented in the Rajya Sabha on July 30.

The primary reasons for these cancellations include inadequate capital, poor earning prospects, and deteriorating financial positions. Additionally, the continuation of operations by these banks was deemed prejudicial to the interests of depositors and the public at large.

In the first half of 2024 alone, the RBI has cancelled the licenses of 10 UCBs. These include two each in Maharashtra, Karnataka, and Uttar Pradesh, and one each in Gujarat, Rajasthan, Assam, and Andhra Pradesh. The trend in recent years shows a steady number of closures: 14 licenses were cancelled in 2023 and 12 in 2022.

Maharashtra stands out with 36 cooperative banks losing their licenses since 2014. This figure represents 46% of the total closures. Following Maharashtra, Uttar Pradesh and Karnataka saw the cancellation of licenses for 14 and 8 banks, respectively. Other states such as Gujarat, Rajasthan, Assam, Odisha, Andhra Pradesh, Telangana, West Bengal, Goa, Madhya Pradesh, and Kerala have also been affected.

The most recent closure in Gujarat was Shree Mahalaxmi Mercantile Co-operative Bank Ltd., Dabhoi, which lost its license in January 2024.

In response to these widespread closures, the RBI has implemented several measures aimed at strengthening the financial health and expanding the operations of UCBs. One such measure includes increased Housing Loan Limits for UCBs.

The RBI has also introduced a phased approach for UCBs to comply with a Priority Sector Lending (PSL) target of 75% of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE) by March 31, 2026. This mandate ensures that a significant portion of UCBs' lending supports priority sectors such as agriculture, micro and small enterprises, and other segments critical to economic development.

Moreover, UCBs are required to adhere to prudential exposure limits: 15% for a single borrower/party and 25% for a group of connected borrowers/parties, based on their Tier-I capital. Additionally, at least 50% of their loans must be in amounts not exceeding Rs 25 lakh or 0.2% of Tier-I capital, up to a maximum of Rs 1 crore per borrower/party. These measures aim to promote financial stability and reduce the risk of concentration in lending.

Contrasting the situation with UCBs, the Union government's reply in Rajya Sabha highlighted that no Rural Cooperative Banks, including State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs), have been closed since 2014. This indicates a more stable performance among rural cooperative banking institutions.

The number of UCB closures reflects the challenges facing the cooperative banking sector in India. These challenges include maintaining adequate capital levels, ensuring robust financial health, and protecting the interests of depositors. The RBI's regulatory measures aim to address these issues, promoting stability and growth within the sector.

As the March 2026 deadline for compliance with the PSL target approaches, UCBs must adapt to these stringent requirements. The emphasis on lending to priority sectors and adhering to prudential exposure limits will be crucial for their continued operation and financial health.