The Reserve Bank of India (RBI) has announced a major decision for the banking sector. After nearly 22 years, the central bank will once again allow the licensing of new urban cooperative banks.
RBI Governor Sanjay Malhotra shared the update while announcing the third monetary policy review for FY 2026-27.
The RBI said draft application guidelines for new licenses will be released soon, and stakeholders will be invited to share their feedback.
Why Were New Licenses Stopped?
The RBI had stopped issuing new urban cooperative bank licenses around 22 years ago. The move came after several cooperative banks faced financial problems due to political interference and weak management.
Now, the RBI plans to introduce an “on-tap” licensing system, similar to the one used for universal banks.
This means eligible applicants will be able to apply for a banking license whenever the application window is open, instead of waiting for a one-time process.
According to the RBI Governor, a discussion paper on the proposal was released in January 2026, and the draft licensing guidelines will be published shortly for public consultation.
RBI to Update Rules for Rural Cooperative Banks
The RBI has also announced a review of its credit monitoring guidelines for rural cooperative banks.
The current Credit Monitoring Arrangement (CMA) guidelines have been in place since 2008.
However, with major changes in the banking and cooperative banking sectors over the years, the RBI believes these rules now need to be updated.
Draft amendment guidelines will be released for public consultation to strengthen risk management and make the cooperative banking sector more stable.
New Rules for Directors Already Introduced
The RBI has also tightened rules related to the tenure of directors in urban cooperative banks.
Under the revised guidelines, a director cannot remain on the board for more than 10 consecutive years.
After completing this term, the person must observe a three-year cooling-off period before becoming eligible for reappointment.
The RBI said some directors had been resigning before completing their terms and then getting re-elected or re-nominated soon after to stay on the board beyond the allowed limit.
To stop this practice, the new rules make it clear that during the three-year cooling-off period, the person can remain associated with the bank only as a member or customer, and not as a director or in any management role.
