The Reserve Bank of India has issued a significantly strengthened and uniform framework for operating current accounts, cash credit and overdraft facilities in Urban Co-operative Banks and Rural Co-operative Banks, marking one of the most comprehensive regulatory updates for cooperative lenders in recent years.
Announced on December 11, 2025, the amendments modify the Credit Risk Management Directions released just two weeks earlier and introduce an exposure-based system aimed at improving credit discipline among larger borrowers.
Earlier, Urban Co-operative Banks were required only to obtain basic declarations related to existing credit facilities and, when needed, a No Objection Certificate from other lending banks before opening a current account.
Rural Co-operative Banks, on the other hand, had no dedicated provisions for managing current or overdraft accounts under the November 28 guidelines. The earlier norms also treated borrowers uniformly, regardless of their scale of borrowing or the risks they presented to the financial system.
The new framework changes this approach decisively. By introducing a clear threshold based on banking exposure, the RBI has created two distinct categories of customers. For borrowers with less than Rs 10 crore in total banking exposure, the process for opening and maintaining current or overdraft accounts remains unchanged. UCBs and RCBs may operate such accounts freely without any new restrictions, ensuring that smaller enterprises and individuals do not face unnecessary compliance burdens.
However, borrowers whose exposure is Rs 10 crore or more will now be subject to a much tighter regime. Only those cooperative banks that hold at least 10 percent of the borrower’s total banking exposure will be permitted to maintain unrestricted current or overdraft accounts.
This condition ensures that accounts with significant financial flows remain with banks that have a substantial stake in the borrower’s credit risk. Banks with lower exposure may operate only collection accounts, and any funds received in such accounts must be transferred to a designated account within two working days. This measure is designed to prevent fund diversion and create a transparent flow of transactions for monitoring purposes.
Additionally, the amended rules prohibit the use of these accounts as pass-through channels for third-party transactions unless authorised. Cooperative banks must also strengthen monitoring through accurate flagging of such accounts in their core banking systems to ensure compliance with exposure-based norms.
These steps are expected to reduce risks arising from multiple-banking arrangements, improve visibility on cash flows and reinforce the broader credit discipline architecture applicable across the banking sector.
By applying heightened scrutiny only to large borrowers, the RBI has struck a balance between prudential regulation and ease of banking for small and medium customers. The revised norms will come into force from April 1, 2026, though cooperative banks may adopt them earlier if ready, giving the sector time to align systems and processes with the new framework.
