The Reserve Bank of India (RBI) is considering resuming licences for setting up new urban co-operative banks (UCBs) after a gap of over two decades.

The weak financial health of the UCBs had led the central bank to pause issuance of fresh licences since 2004. 

Considering the positive developments in the sector since then, the RBI has decided to soon release a discussion paper on licencing of new UCBs amid growing stakeholder demand.

Driven by a liberal licencing policy, the number of UCBs mushroomed in the 1990s and grew to 1,926 over the years. But financial stress plagued nearly one-third of the newly licenced banks and the number of UCBs dropped to 1,472 as of March 2025. 

“Starting 2004-05, the Reserve Bank initiated a process of consolidation, including amalgamation of unviable UCBs with their viable counterparts, closure of non-viable entities and suspension of issuance of new licences. As a result, the number of UCBs declined steadily over the last two decades from 1,926 to 1,472,” the RBI said in its report on the trend and progress of banking in India.

According to the report, deposit growth of UCBs combined increased by 4.1% in FY24 while credit grew 5%. Scheduled commercial banks, in comparison, saw deposit growth at 13.4% and credit at 16% during this period.

The UCBs are aimed at serving small borrowers and businesses in urban and semi-urban areas.