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RBI and government reforms boost cooperative banks, enhance credit via NCDC, raise UCB housing loan limits, expand branches, improve digital access with NUCFDC and Sahakar Sarthi.
The government and the RBI have taken various measures to strengthen cooperative banks’ financial health, governance, and digital inclusion.
In a significant boost to the cooperative banking sector, the Reserve Bank of India, in consultation with the central government, has rolled out a fresh set of measures aimed at improving the financial health, governance standards and digital reach of cooperative banks across the country. The steps are expected to enhance credit availability, improve depositor confidence and accelerate financial inclusion, particularly in rural and semi-urban areas.
A key reform announced by the central bank is the decision to treat loans sanctioned by banks to the National Cooperative Development Corporation (NCDC) for on-lending to cooperative societies as ‘priority sector lending’ (PSL). This benefit will apply to loans sanctioned on or after January 19, 2026, under the respective PSL categories.
“These apply to banks other than Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks and Local Area Banks. These loans are for purposes and activities as laid down in the Master Direction on Priority Sector Lending, 2025,” said Minister of State for Finance Pankaj Chaudhary in report to a query in the Rajya Sabha on Tuesday.
According to the finance ministry, this change under the revised PSL framework will facilitate greater credit flow to cooperative societies through NCDC, which operates under the administrative control of the Ministry of Cooperation. NCDC provides financial assistance to cooperatives and plays a direct role in strengthening the cooperative movement across sectors such as agriculture, dairy, fisheries and rural industries.
For borrowers linked to cooperatives, the decision is expected to translate into easier and cheaper access to credit, as banks will now have an added incentive to lend to NCDC-backed projects while meeting their priority sector obligations.
Governance and lending relief for urban cooperative banks
The RBI has also eased several norms for Urban Cooperative Banks (UCBs) to support their growth and stability. UCBs have been allowed to open new branches, a move that could expand their footprint and improve customer access. In addition, the housing loan exposure limit for UCBs has been raised sharply from 10% to 25% of their total loans and advances, enabling them to play a bigger role in meeting urban housing demand.
To strengthen governance, amendments to the Banking Regulation Act have increased the maximum tenure of directors on cooperative bank boards from eight years to ten years, offering greater continuity in management and decision-making.
Push towards digital inclusion and technology support
Digital inclusion has emerged as a major focus area of the reforms. The licensing fee for onboarding cooperative banks to the Aadhaar-enabled Payment System (AePS) has been reduced, making it easier for them to offer basic digital payment services to customers.
The RBI and the government have also put in place institutional mechanisms to support technology adoption. The National Urban Co-operative Finance and Development Corporation Limited (NUCFDC), a non-deposit-taking NBFC, has been established as an umbrella organisation to provide IT infrastructure and operational support to Urban Cooperative Banks. For Rural Cooperative Banks, a Shared Services Entity named ‘Sahakar Sarthi’ has been set up to deliver technological services and improve operational efficiency.
Govt Measures To Strengthen Cooperative
According to the MoS finance, the government and the RBI have taken various measures to strengthen cooperative banks’ financial health, governance and digital inclusion along with enhancing deposit security, credit availability and prudent regulation, which inter-alia include:
- Urban Cooperative Banks (UCBs) have been allowed to open new branches
- Housing loan limits have been increased from 10% to 25% of their total loans and advances for UCBs
- The Banking Regulation Act has been amended to increase the terms of directors of Cooperative Banks from 8 to 10 years
- Licensing fee for onboarding of cooperative banks to Aadhar enabled Payment System (AePS) have been reduced
- The National Urban Co-operative Finance and Development Corporation Limited (NUCFDC), which is a non-deposit taking Non-Banking Financial Company (NBFC), has been set up as an Umbrella Organization for Urban Cooperative Banks to provide Information Technology (IT) infrastructure and operational support
- A Shared Services Entity (SSE), Sahakar Sarthi, has been established to provide technological services to Rural Cooperative Banks
- Rural Cooperative Banks have been included by RBI in the Integrated Ombudsman Scheme
- Deposit Insurance and Credit Guarantee Corporation (DICGC) insures various types of deposits up to Rs 5,00,000 per depositor per bank (including principal and interest) for all cooperative banks.
The National Cooperative Development Corporation (NCDC), a statutory corporation under the administrative control of the Ministry of Cooperation, provides financial assistance to Cooperatives and contributes directly in accelerating the growth of cooperative movement.
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February 10, 2026, 16:56 IST
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