The year 2025 will be remembered as a defining phase for India’s cooperative banking sector, marked by sweeping regulatory reforms, long-awaited relief measures, improved governance clarity and accelerated consolidation.
Compiled by Indian Cooperative, developments over the past year underline a decisive policy shift by the Reserve Bank of India (RBI) and the Central Government to modernise cooperative banks and integrate them more closely with the mainstream financial system.
One of the most impactful measures was the RBI’s decision to provide major credit relief to Urban Co-operative Banks (UCBs). Addressing long-standing demands of co-operators, the central bank doubled limits for small-value loans and enhanced housing loan ceilings for Tier 3 and Tier 4 UCBs.
For the first time, a separate exposure cap for builder loans was introduced, providing operational clarity and enabling UCBs to play a stronger role in housing finance and urban development.
A major legislative milestone came with the enforcement of key provisions of the Banking Laws (Amendment) Act, 2025, from December 15. Amendments to Section 56 of the Banking Regulation Act replaced outdated reporting systems with a uniform “last day of the fortnight” framework, aligned monthly and quarterly returns with calendar-end dates, and removed obsolete provisions.
These changes are expected to significantly ease compliance burdens while strengthening supervisory efficiency and regulatory uniformity across cooperative and commercial banks.
Branch expansion norms also witnessed a paradigm shift with the introduction of the Eligibility Criteria for Branch Authorisation (ECBA) framework, replacing the earlier Financially Sound and Well Managed (FSWM) norms. Under ECBA, minor or technical monetary penalties will no longer automatically restrict branch expansion, opening new growth avenues for well-performing cooperative banks.
In one of the RBI’s largest regulatory clean-up exercises, over 9,000 circulars were consolidated into structured Master Directions. The RBI issued 27 Master Directions for UCBs and 26 for Rural Co-operative Banks, withdrawing 9,445 outdated circulars after extensive stakeholder consultations, significantly enhancing transparency and ease of compliance.
Relief measures were also extended to Tier 3 and Tier 4 UCBs through amendments to lending norms against gold and silver collateral, enabling these banks to provide need-based working capital support to MSMEs, artisans and traditional industries.
Another regulatory change introduced during the year related to the directors’ tenure of cooperative banks, an issue that has long been part of discussions on cooperative bank governance and is currently a major subject of debate within the sector.
In 2025, the RBI also extended the Cooperative Ombudsman Scheme to Rural Co-operative Banks. This move strengthened customer grievance redressal mechanisms and brought greater parity, transparency and depositor protection across the cooperative banking system.
On the infrastructure front, cooperative banks were permitted to invest in Shared Service Entities promoted by NABARD, strengthening their digital and operational capabilities. Consolidation also continued, with the RBI approving the voluntary amalgamation of New India Co-operative Bank with Saraswat Co-operative Bank, enhancing depositor confidence and operational efficiency.
Progress toward the proposed Cooperative Bank of India and tax incentives under the Income Tax Bill, 2025 further reinforced sectoral stability. Taken together, 2025 emerged as a transformational year for cooperative banking. As the sector enters 2026, cooperative banks appear more resilient, better governed and strategically aligned with India’s evolving financial architecture.
