The Reserve Bank of India (RBI) has announced a significant regulatory reform for the cooperative banking sector by introducing the new “Eligibility Criteria for Branch Authorization (ECBA)” framework. The most notable change under the new guidelines is the removal of earlier penalty-linked restrictions that often prevented Urban and Rural Cooperative Banks from opening new branches, even when the penalties were minor or technical in nature.
Under the new system, monetary penalties under the Banking Regulation Act will continue as earlier, but such penalties will no longer act as an automatic barrier to branch expansion. A bank will now be permitted to open new branches as long as it complies with the ECBA criteria, marking a major shift from the previous framework.
The ECBA norms replace the Financially Sound and Well Managed (FSWM) requirements for Urban Cooperative Banks and introduce harmonised eligibility criteria for Rural Cooperative Banks.
To qualify as ECBA compliant, a bank must meet several conditions based on audited financial statements, including maintaining a CRAR at least one percentage point above the regulatory minimum, keeping net NPAs below 3%, earning profits in the last two financial years, and avoiding defaults in CRR/SLR obligations.
Additionally, banks must be fully on Core Banking Solution (CBS) and must not be under Directions, the Supervisory Action Framework, or the Prompt Corrective Action framework. Urban Cooperative Banks are also required to have at least two professional directors on their boards as prescribed in the 2025 governance guidelines.
RBI has mandated that banks review their ECBA compliance annually and place it before their Boards within 30 days of adopting the statutory audit report. The approved compliance status must then be communicated to the RBI, and to NABARD in the case of RCBs, within 15 days. The compliance will remain valid until September 30 of the following financial year unless the bank becomes non-compliant earlier.
Alongside the new framework, RBI has repealed the earlier Directions issued on November 28, 2025. Any previous instructions that were already repealed will continue to remain invalid under the new system.
Leaders from the cooperative banking sector, including representatives from NAFCUB, had raised the issue with RBI officials multiple times and requested the withdrawal of the penalty-linked restrictions, and now the restriction has been removed. For years, co-op banks had argued that penalty-based disqualifications created unnecessary hurdles in branch expansion.
The ECBA framework is expected to streamline branch authorization, create regulatory clarity, and support the sector’s efforts to expand financial services in rural and semi-urban regions.
