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The Reserve Bank of India (RBI) is likely to revive the issuance of fresh licences for urban co-operative banks (UCBs), a move that would end a two-decade pause on new entrants in the sector, according to a report. 

According to a report in NDTV Profit -- citing sources -- the central bank is expected to approve fresh licences for UCBs, a practice it had discontinued in 2004.

The development comes after the RBI released a discussion paper in January seeking feedback on whether it should resume granting licences to urban co-operative banks.

The RBI has received positive responses to the proposal, with industry participants supporting the move while also suggesting that the proposed minimum capital requirement of Rs 300 crore be reduced, the report said.

It further noted that regulatory oversight and supervisory standards for urban co-operative banks have improved significantly since 2004, giving the central bank greater comfort in considering the resumption of licensing.

In its discussion paper, the RBI outlined several potential benefits of allowing new UCBs to enter the sector.

These included stronger supervisory mechanisms, enhanced financial inclusion, improved financial health of co-operative banks and support from the umbrella organisation for the sector in areas such as capital, technology and knowledge-sharing.

Meanwhile, the paper highlighted a number of challenges, including difficulties in raising capital, limited incentives for investors due to the face-value entry and exit framework for shareholders, governance concerns, technological limitations and the relatively small contribution of UCBs to the overall banking system.

As of March 2025, India had 1,457 urban co-operative banks with total assets of Rs 7.38 lakh crore and deposits amounting to Rs 5.84 lakh crore, according to data cited in the report