The Reserve Bank of India (RBI), in its Financial Stability Report (FSR) – June 2026, said Primary (Urban) Cooperative Banks (UCBs) strengthened their financial position during FY26, supported by improved asset quality, healthy credit growth and adequate capitalisation. While a few individual banks could face vulnerabilities under severe stress scenarios, the sector remained resilient at the aggregate level.
According to the report, UCB credit growth remained healthy, with total advances rising 9.6 per cent year-on-year as of March 2026. The growth was broad-based, with both Scheduled Urban Cooperative Banks (SUCBs) and Non-Scheduled Urban Cooperative Banks (NSUCBs) recording an increase in lending.
Asset quality improved significantly during the year. The Gross Non-Performing Asset (GNPA) ratio declined to 5.2 per cent, while the Net NPA (NNPA) ratio improved to 1.0 per cent as of March 2026.
Large borrower accounts, which constituted 22.7 per cent of total advances, also showed improvement, with their GNPA ratio declining to 8.2 per cent. The Provision Coverage Ratio (PCR) for these accounts increased sharply to 97.8 per cent, mainly due to improved provisioning by NSUCBs.
Capital adequacy remained comfortable across all four regulatory tiers of UCBs. The Capital to Risk-weighted Assets Ratio (CRAR) stood at 17.7 per cent, well above the regulatory minimum requirement. Net Interest Income (NII) grew 2.4 per cent year-on-year, while the Net Interest Margin (NIM) improved marginally.
However, profitability moderated during the year, with Return on Assets (RoA) declining to 0.6 per cent and Return on Equity (RoE) to 6.3 per cent.
The RBI conducted stress tests on 194 UCBs with assets exceeding Rs 500 crore, covering around 71 per cent of the sector’s total assets. The results showed that the consolidated CRAR of the sector would remain above the regulatory minimum even under severe stress scenarios. However, a few Tier-2, Tier-3 and three Tier-4 UCBs could experience capital shortfalls or liquidity stress under extreme credit concentration and interest rate shock scenarios.
The report also highlighted the RBI’s continued supervisory focus on the cooperative banking sector. Between December 2025 and May 2026, the central bank took enforcement action against 99 regulated entities, including 56 cooperative banks, and imposed penalties amounting to Rs 8.96 crore.
The RBI further noted the significant role of cooperative banks in India’s financial system. Of the 1,950 banks covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC), 1,826 are cooperative banks.
The share of insured deposits in assessable deposits stood at 60.1 per cent for cooperative banks, substantially higher than the 38.6 per cent recorded for commercial banks.
Overall, the RBI said Urban Cooperative Banks have continued to strengthen their balance sheets through improved asset quality and adequate capitalisation.
