In a significant move towards strengthening the resilience of the cooperative banking sector, the Reserve Bank of India (RBI) has announced that it will explore the extension of the macro stress testing framework to Urban Cooperative Banks (UCBs) in the Tier-3 and Tier-4 categories during the financial year 2025-26.
The proposal, part of the agenda outlined by the Financial Stability Division (FSD) of the RBI, aims to deepen the understanding of systemic vulnerabilities and enhance the risk preparedness of UCBs, which serve as a crucial pillar of grassroots banking in India.
The RBI’s macro stress testing, currently applied to other segments of the financial sector, helps assess the ability of institutions to withstand adverse macroeconomic shocks. By extending this framework to UCBs, the central bank intends to proactively monitor their financial health amid evolving challenges.
Alongside this initiative, the RBI also plans to develop an in-house liquidity stress testing framework for NBFCs and evaluate the impact of climate transition risks on banks exposed to carbon-intensive sectors. A new ‘Growth-at-Risk’ model will also be introduced to link current financial conditions to potential future growth outcomes.
Experts believe this move reflects the regulator’s growing emphasis on systemic stability and the need to bring cooperative banks under more rigorous risk management mechanisms.
