In a significant move to reinforce the cooperative banking ecosystem, the Reserve Bank of India (RBI), in consultation with the Government of India, has rolled out a series of reforms aimed at improving financial health, governance, credit flow and digital inclusion of cooperative banks.
A key highlight of the measures is the decision to allow loans sanctioned by banks to the National Cooperative Development Corporation (NCDC) for on-lending to cooperative societies to be classified as Priority Sector Lending (PSL). Effective from January 19, 2026, this provision applies to banks other than Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks and Local Area Banks, and is expected to significantly enhance credit availability for cooperative institutions.
To strengthen Urban Cooperative Banks (UCBs), the RBI has permitted the opening of new branches and increased housing loan limits from 10% to 25% of total loans and advances. Governance reforms include amendments to the Banking Regulation Act, extending the tenure of cooperative bank directors from 8 to 10 years.
On the digital front, onboarding costs for Aadhaar Enabled Payment System (AePS) have been reduced, while new institutions have been created to provide shared technological support. The NUCFDC has been established as an umbrella IT and operational support body for UCBs, while ‘Sahakar Sarthi’ will serve as a Shared Services Entity for Rural Cooperative Banks.
Further strengthening depositor confidence, all cooperative banks continue to be covered under DICGC insurance up to Rs 5 lakh per depositor. These reforms mark a decisive step toward a stronger, more resilient and digitally empowered cooperative banking sector.
This information was given by the Minister of State in the Ministry of Finance Pankaj Chaudhary in Rajya Sabha on Tuesday.