RBI's new guidelines may slow expansion of UCBs

The Reserve Bank of India's (RBI's) revised guidelines on business authorisation plans for cooperative banks may restrict or slow the expansion strategy of urban cooperative banks (UCBs), bank officials told Business Standard.

- ANUPREKSHA JAIN

Under the new norms, UCBs that cross key deposit thresholds -₹100 crore, ₹1,000 crore and ₹10,000 crore - are immediately pushed into higher regulatory tiers, which require compliance with stricter norms, including higher capital adequacy ratios. A UCB with Tier-III deposits (above ₹1,000 crore) must maintain capital adequacy at least 3 percentage points above the applicable regulatory requirement.

Officials said that these tighter requirements follow the recent failure of a UCB.

A senior official at Saraswat Cooperative Bank said that expansion for existing UCBs is now closely tied to deposit-linked tier classifications, acting as a natural break. "As deposits rise and banks cross into higher tiers, they face progressively stricter capital adequacy norms, governance expectations and compliance costs. These act as disincentives to expand operations and increase the deposit base," the official said.