In a significant policy update for the urban cooperative banking sector, the Reserve Bank of India (RBI) has revised the eligibility norms for Urban Co-operative Banks (UCBs) seeking inclusion in the Second Schedule of the RBI Act, 1934.
The new circular, issued on December 4, replaces specific provisions announced on November 28 and expands eligibility to all licensed UCBs, except Salary Earners’ Banks, provided they meet the prescribed criteria.
Under the updated guidelines, the earlier restriction, where only Tier 3 and Tier 4 UCBs could apply, has been removed. Now, any licensed UCB, regardless of its tier classification, may seek scheduled-bank status if it satisfies the conditions laid out in the circular.
These include maintaining minimum deposits required for Tier-3 categorisation for two consecutive financial years, holding a Capital to Risk-Weighted Assets Ratio (CRAR) at least three percentage points above the minimum applicable regulatory requirement, and having no major regulatory or supervisory concerns. Eligibility will be assessed based on the RBI’s latest inspection findings or audited financial statements.
The circular also revises the glide path for UCBs moving to a higher regulatory tier. Banks that cross the threshold into a higher tier will now have a maximum of two years, the year of crossing plus the following year, to comply with the regulatory requirements applicable to that tier. The earlier circular had allowed up to three years.
With this update, the RBI has aligned scheduling norms with the newly implemented Eligibility Criteria for Business Authorisation (ECBA) framework. The revision provides greater clarity and reflects the current regulatory architecture for UCBs, enabling more banks to become eligible for scheduled status while maintaining prudential safeguards.
