Abstract：India's central bank is preparing to accept fresh applications for urban cooperative bank (UCB) licences after a gap of about 22 years, pairing the reopening with stricter audit and disclosure rules for cooperative credit societies. According to The Hindu, the Reserve Bank of India's move is intended to let new banks enter on a sound institutional footing rather than simply reopen the door.
India's central bank is preparing to accept fresh applications for urban cooperative bank (UCB) licences after a gap of about 22 years, pairing the reopening with stricter audit and disclosure rules for cooperative credit societies. According to The Hindu, the Reserve Bank of India's move is intended to let new banks enter on a sound institutional footing rather than simply reopen the door.
ContentsThe proposed RBI framework sets out what a cooperative credit society must show before it can be considered for a banking licence. An eligible society needs minimum deposits of ₹10,000 crore, net worth of at least ₹300 crore, a capital-to-risk-weighted assets ratio of at least 12%, a net non-performing asset (NPA) ratio not exceeding 3%, and at least 10 years of operational existence.
For beginners, those thresholds are best read as a size and safety filter. Deposits measure how much customer money the institution holds, net worth is the cushion of owned funds, the capital-to-risk-weighted assets ratio compares that cushion with the riskiness of its loans, and the net NPA ratio shows what share of loans has turned bad after provisions. Multistate cooperative credit societies will be considered first, though select single-state societies with a wider geographical footprint may also qualify.
The scale of the existing sector explains why the entry rules matter. Citing an RBI report, The Hindu notes that India had 1,457 UCBs at the end of March 2025, with a combined balance sheet of ₹7.38 lakh crore, deposits of ₹5.84 lakh crore and advances of ₹3.70 lakh crore. The distribution is lopsided: 838 Tier 1 banks made up 57.5% of the institutions but held only 11.3% of deposits, while just six Tier 4 banks accounted for 23.8% of deposits. That uneven spread shaped RBI's decision to favour financially stronger, geographically diversified societies when reopening licensing.
The Ministry of Commerce's Multi-State Co-operative Societies (Auditor's Report) Order, or MSCARO 2026, is the companion piece. Modelled on the Companies (Auditor's Report) Order that adds reporting duties for company auditors, it responds to concerns about inconsistent audit practices, weak financial disclosures, governance gaps and the risk of irregularities going undetected. Many cooperative credit societies have had relatively limited institutional oversight compared with commercial banks.
MSCARO lays down a standardised audit format in which auditors must give clear Yes or No responses, with explanations, on financial, administrative, governance and statutory compliance points. The scope covers non-performing assets, overdue loans, how funds are used, cybersecurity safeguards, anti-money laundering compliance and board composition. Audit observations will feed into the Central Registrar of Cooperative Societies portal, which the report says supports risk-based supervision, automated scrutiny and potential AI-based risk assessment.
The rollout is phased. The first stage covers societies crossing the ₹1,000-crore threshold, with a longer-term aim of extending the framework to societies crossing ₹50 crore in relevant financial parameters, giving smaller institutions time to upgrade their accounting and reporting systems.
The Institute of Chartered Accountants of India (ICAI) is translating the requirements into practice. In October, its Cooperation and NPO Committee reviewed the draft MSCARO and submitted a comprehensive audit checklist to the Ministry of Cooperation. ICAI is working on a Guidance Note on MSCARO 2026 to give auditors a structured reference for key audit considerations and statutory compliance, and is running capacity-building programmes for cooperative societies and departmental auditors.
The caution has a history. The report cites Madhavpura Mercantile Cooperative Bank, one of India's earliest major UCB failures, which had excessive exposure to entities linked to stock market operator Ketan Parekh, and Punjab and Maharashtra Cooperative Bank, which concealed large stressed loans, particularly exposure to HDIL, through fraudulent accounting. Poor governance, political interference, dual regulation, concentrated lending, weak capital structures and technology gaps were cited as factors behind the failure of several UCBs.
The reforms also sit alongside governance changes from the 2023 amendment to the Multi-State Cooperative Societies Act, including a Cooperative Ombudsman, a Cooperative Election Authority, audit and ethics committees, and concurrent audits for societies with turnover or deposits above ₹500 crore. The report stresses that MSCARO compliance does not by itself qualify a multistate cooperative for a banking licence, and an ICAI checklist does not replace RBI's prudential and licensing requirements. If implemented effectively, the combination could help turn financially sound multistate credit cooperatives into professionally managed urban banks, widening competition, financial inclusion and access to organised credit.
The reopening does not mean RBI is relaxing supervision of existing UCBs. Separately, the central bank extended its directions on Sonpeth Nagari Sahakari Bank Maryadit in Parbhani district, Maharashtra, by three months, from the close of business on 30 October 2026 to the close of business on 30 January 2027, subject to review. The extension was announced in RBI Press Release 2026-2027/1397 dated 28 October 2026 and signed by Brij Raj, Chief General Manager.
RBI acted under sub-section (1) of Section 35A read with Section 56 of the Banking Regulation Act, 1949, saying it was satisfied that extending the directive was necessary in the public interest. The directions, first imposed in July 2025, followed RBI engagement with the bank's board and senior management; the original release cited a lack of concrete efforts by the bank to address supervisory concerns and protect depositors. The extension is the second such step, and on the current timetable the regime would run for eighteen months in total.
RBI's release states that the extension should not be read as implying it is satisfied with the bank's financial position, and it does not cancel the licence. The original July 2025 directions barred withdrawals of any amount from deposit accounts, with set-off of loans against deposits permitted under conditions, and noted that eligible depositors could claim up to ₹5,00,000 from the Deposit Insurance and Credit Guarantee Corporation after submitting willingness and due verification. The October 2026 extension announced no change to that position.
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