After more than two decades without new licences for urban co-operative banks, Gujarat could soon see fresh entrants into the sector if the Reserve Bank of India moves ahead with its proposed changes to licensing rules.
The RBI has proposed easing the conditions for issuing new licences to urban co-operative banks (UCBs), potentially creating an opportunity for four to six new banks to be established in Gujarat. The move comes after a long freeze that began following the crisis involving Madhavpura Mercantile Co-operative Bank (MMCB), which raised serious concerns over the financial stability and governance of co-operative banks.
The proposed changes could give established co-operative credit societies in the state a pathway to become full-fledged urban co-operative banks, while the RBI’s draft rules are designed to ensure that only financially strong and experienced institutions qualify.
22-Year Freeze on New Licences
Gujarat has not received fresh licences for new urban co-operative banks for nearly 22 years.
The freeze followed the crisis at Madhavpura Mercantile Co-operative Bank, where depositors lost their savings and the bank was estimated to have accumulated losses of more than ₹1,000 crore.
The crisis became a major turning point for the co-operative banking sector. Following the episode, the authorities adopted a cautious approach towards allowing new institutions to enter the urban co-operative banking space.
Now, with the RBI considering a relaxation of the licensing framework, the sector could be entering a new phase.
Four to Six New UCBs Could Emerge in Gujarat
According to estimates from the co-operative banking sector, around four to six co-operative credit societies in Gujarat could potentially qualify to apply for an urban co-operative bank licence if the proposed RBI framework comes into effect.
The proposed changes could create a long-term opportunity for eligible credit societies that have built a strong financial base and have been operating successfully for several years.
For these institutions, becoming an urban co-operative bank could mean expanding their operations, offering a wider range of banking services and reaching more customers.
However, the new opportunity would not be available to every credit society. The RBI’s proposed conditions are designed to ensure that applicants have sufficient experience, capital and financial strength before they are allowed to enter the banking sector.
What the RBI’s Proposed Rules Say
Under the draft framework, a co-operative credit society seeking a banking licence would need to meet several requirements.
The society must have been in operation for at least 10 years. It must also have:
Minimum deposits of ₹10,000 crore
A net worth of at least ₹300 crore
Registration under the Multi-State Co-operative Societies Act, 2002
A positive financial performance during the previous five years
These conditions are intended to ensure that only established and financially sound institutions are considered for a banking licence.
The requirement for a long operating history would also help demonstrate whether a society has experience in managing deposits, lending and other financial activities responsibly.
Stronger Capital Requirements
The proposed framework also focuses heavily on the financial strength of the applicant.
The institution’s Capital to Risk-Weighted Assets Ratio (CRAR) as of March 31 of the year in which it applies must be at least 12%.
In simple terms, this requirement ensures that the institution has an adequate capital cushion to absorb financial losses and remain stable during difficult periods.
The RBI’s focus on capital strength is particularly significant given the problems that have affected some co-operative banks in the past.
Restrictions on Ownership
The draft rules also seek to prevent excessive concentration of ownership within a co-operative bank.
No individual member would be allowed to hold more than 5% of the bank’s share capital.
This is intended to reduce the possibility of a small number of individuals gaining disproportionate influence over the institution.
The proposed norms also require members of the board of directors to have a good track record.
Such conditions are aimed at strengthening governance and ensuring that management decisions are taken in the wider interest of depositors and the institution rather than by a small group of influential members.
Gujarat Already Has a Large Co-operative Banking Network
Gujarat already has a significant urban co-operative banking network.
The state currently has around 204 urban co-operative banks, operating through at least 1,200 branches.
At the national level, there are around 1,437 urban co-operative banks, with more than 11,000 branches.
This makes the proposed licensing changes particularly important for Gujarat, where co-operative banking has traditionally played a significant role in providing financial services to local communities, small businesses and other customers.
Why the Proposed Change Matters
The possible return of new UCB licences could bring more competition into Gujarat’s co-operative banking sector.
New institutions could help expand access to banking services, particularly for local businesses and communities that have traditionally depended on co-operative financial institutions.
Existing co-operative credit societies that meet the RBI’s conditions could also get an opportunity to grow beyond their current operations.
However, the proposed framework is not simply about allowing more banks to open. It is also an attempt to ensure that new entrants are financially strong enough to protect depositors.
A More Careful Approach After the MMCB Crisis
The long gap in issuing new licences reflects the caution that followed the MMCB crisis.
The earlier experience showed how financial weaknesses and poor governance at a co-operative bank can have serious consequences for depositors.
The proposed RBI framework therefore places emphasis on:
Financial strength + adequate capital + long operating experience + responsible governance.
The aim is to allow stronger institutions to enter the banking sector while reducing the risks associated with weak or poorly managed entities.
Co-operative Sector Welcomes Possible Opening
Co-operative banking representatives have described the proposed changes as a positive development for the sector.
They believe the new framework could strengthen the co-operative banking ecosystem and give successful credit societies an opportunity to expand their operations.
The proposed system could also help well-run institutions move towards becoming regulated banking entities while maintaining safeguards for depositors.
For Gujarat, the possibility of four to six new UCBs would mark a significant change after more than two decades in which no fresh licences were issued.
What Happens Next?
The RBI’s proposals are currently in the draft stage, meaning the final rules and licensing process will determine exactly how many institutions are ultimately eligible to apply.
Credit societies interested in becoming urban co-operative banks will need to demonstrate that they meet the required financial, operational and governance conditions.
If the proposed framework is implemented in its current form, Gujarat could become one of the states to see a new generation of urban co-operative banks emerge after a 22-year gap.
The move could therefore mark a new chapter for Gujarat’s co-operative banking sector — opening the door to new institutions while keeping the lessons of the past firmly in focus.
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