In a major move for India’s cooperative banking sector, the Reserve Bank of India (RBI), along with the central government, has announced a fresh set of reforms.
The goal is clear: strengthen cooperative banks, improve governance, expand digital services, and make credit more accessible — especially in rural and semi-urban areas.
These steps are expected to boost depositor confidence and improve financial inclusion across the country.
Loans to NCDC Now Count as Priority Sector Lending
One of the biggest changes is related to Priority Sector Lending (PSL).
Banks that lend to the National Cooperative Development Corporation (NCDC) for further lending to cooperative societies will now be able to count those loans under PSL.
This applies to loans sanctioned on or after January 19, 2026.
Why does this matter?
Banks are required to meet PSL targets.
By allowing loans to NCDC to qualify, banks now have a strong incentive to fund cooperative-backed projects.
NCDC, which operates under the Ministry of Cooperation, supports sectors such as:
Agriculture
Dairy
Fisheries
Rural industries
With this change, cooperative societies may find it easier and cheaper to access loans.
However, this benefit applies to banks other than Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks, and Local Area Banks.
Big Relief for Urban Cooperative Banks
The RBI has also relaxed several rules for Urban Cooperative Banks (UCBs).
First, UCBs are now allowed to open new branches.
This will help them expand their reach and serve more customers.
Second, the housing loan exposure limit has been increased significantly — from 10% to 25% of total loans and advances. This allows UCBs to play a bigger role in urban housing finance.
To strengthen governance, the Banking Regulation Act has been amended.
The maximum tenure of directors on cooperative bank boards has been increased from eight years to ten years.
This ensures better continuity and stability in management.
Strong Push for Digital Inclusion
Digital banking is another major focus area.
The licensing fee for cooperative banks to join the Aadhaar-enabled Payment System (AePS) has been reduced. This makes it easier for them to offer digital payment services.
To support technology adoption:
The National Urban Co-operative Finance and Development Corporation Limited (NUCFDC) has been set up to provide IT and operational support to Urban Cooperative Banks.
A Shared Services Entity called Sahakar Sarthi has been created to offer technological services to Rural Cooperative Banks.
Rural Cooperative Banks have also been brought under the RBI’s Integrated Ombudsman Scheme, giving customers a stronger grievance redressal system.
Stronger Deposit Protection and Overall Impact
Deposits in cooperative banks continue to be insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakh per depositor per bank, including principal and interest.
Overall, these reforms aim to:
Improve financial health of cooperative banks
Strengthen governance standards
Expand digital services
Increase credit flow to cooperatives
Enhance depositor confidence
By combining regulatory support, digital upgrades, and better credit access, the RBI and the government are trying to modernise the cooperative banking system while keeping its grassroots focus intact.
For millions who rely on cooperative banks, especially in rural India, these changes could mean stronger institutions and easier access to financial services in the years ahead.
