RBI Draft: After 22 years, a big opportunity may arise for the co-operative banking sector of Gujarat. The Reserve Bank of India (RBI) has released draft guidelines to re-introduce ‘On-Tap’ licensing for Urban Co-operative Banks (UCBs). After the implementation of the new system, some strong cooperative credit societies of Gujarat can apply to become urban cooperative banks. According to the estimates of the leaders of the cooperative sector, four to six new UCBs are likely to be set up in Gujarat initially.
Why new licenses were closed since 2004?
The process of granting new licenses to urban co-operative banks was almost at a standstill since June 2004. During that period there were serious concerns about financial fragility, governance and security of depositors’ money in the co-operative banking sector. The crisis of Madhavpura Mercantile Co-operative Bank in Gujarat also proved to be a major setback for the co-operative banking sector. RBI then took a very strict stance on granting licenses to new UCBs. According to RBI, regulatory oversight has been strengthened in recent years following the improvement in the financial condition of the UCB sector, consolidation of weak banks and changes in the Banking Regulation Act.
Now what decision did RBI take?
RBI has announced ‘Draft Guidelines for On-Tap Licensing of Urban Co-operative Banks’ on 5 August 2026. These are not final rules yet. RBI has invited suggestions and objections from the public and stakeholders till 5 September 2026. This draft has been prepared based on the feedback received on the Discussion Paper released in January 2026. Eligible cooperative credit societies will be able to apply for banking licenses after the final guidelines come into force.
Possibility of 4 to 6 new banks in Gujarat
According to Jyotindra Mehta, associated with Federation of Urban Co-operative Banks and Credit Societies, around four to six eligible cooperative credit societies in Gujarat may come forward to become UCBs after the new licensing system comes into effect. He said that at present there are around 204 urban co-operative banks and their 1,200 branches operating in Gujarat. The report also states that as many as 1,437 UCBs and more than 11,000 branches are functioning across the country.
Starting a new bank will not be easy
The RBI is opening the way for re-issuance of licences, but the rules have been kept very strict. According to the draft, a cooperative credit society applying for UCB needs to be in operation for at least 10 years. It should have deposits of at least ₹10,000 crore and a net worth of ₹300 crore. RBI will give preference to societies having operations in different states and registered under the Multi-State Co-operative Societies Act, 2002 in the initial phase. RBI will also examine its financial position and performance over the past years. As per the draft, the institution has to demonstrate continuous positive progress in financial and operational parameters over the previous five years. Its Capital to Risk-Weighted Assets Ratio (CRAR) should be at least 12 percent and Net NPA should also be within the prescribed limits.
One member cannot hold more than 5% of the shares
RBI has also suggested strict provisions to prevent concentration of ownership in new banks. According to the draft, no single member can hold more than 5 percent of the total share capital. Completion of qualification does not automatically lead to a banking license. RBI will examine several aspects of the application including screening, inspection, business plan, IT infrastructure, governance framework and financial capacity. According to the draft, an eligible applicant can get first in-principle approval and its validity will be for 18 months. The final banking license will be granted only after fulfilling all the conditions. RBI has made it clear that licenses will be given very selectively.
Why important for cooperative sector of Gujarat?
Gujarat has long had a strong presence in the cooperative sector. A vast network of dairy, agriculture, credit societies and co-operative banking is operating in the state. The new guidelines will allow large credit societies with good financial standing and strong governance to grow into full-fledged banks. On the other hand, only financially very strong institutions will be able to avail this opportunity due to ₹10,000 crore deposit, ₹300 crore net worth and other stringent rules.