The RBI has invited comments on the draft directions from public/stakeholders till August 25
Business authorisation relates to expansion of the area of operations and opening new place of business, among others | Photo Credit: DHIRAJ SINGH
The Reserve Bank of India said on Monday it plans to replace the financially sound and well-managed (FSWM) norms for urban co-operative banks (UCBs) with harmonised eligibility criteria for business authorisation (ECBA) for certain business authorisations and permissions.
Business authorisation relates to expansion of the area of operations and opening new place of business, among others.
A bank will be considered fully complying with ECBA if it meets conditions such as regulatory minimum applicable (capital to risk-weighed assets ratio (CRAR) and Net non-performing assets (NPAs) of not more than 3 per cent, based on the audited financial statements as of 31 March of the immediately preceding financial year, per the Draft Master Direction – Business Authorisation for Co-operative Banks (Directions), 2025.
Besides the CRAR and Net NPA criteria, UCBs have to also ensure that they have recorded net profit during the preceding two financial years, without any accumulated losses in the balance sheet; not defaulted in the maintenance of reserve ratios during the preceding and current financial year; fully implemented core banking solution (CBS).
Further, the bank (State Co-operative Bank, District Central Cooperative Bank, Rural Co-operative Bank) should not have been under any directions/supervisory action framework/prompt corrective action of RBI/Nabard, as the case may be, in the previous or current financial year; and the bank (only in the case of UCBs) should have at least two professional directors on the Board.
audit report
The RBI said a bank should determine its compliance with the ECBA every year based on the audited financial statements as of March 31 of the immediately preceding financial year, and place it before its Board within 30 days from the date of adoption of the audit report.
The period of validity of compliance with ECBA will e till 30 September of next FY, unless the bank is declared non-compliant with ECBA by the supervisor or during the next self-review.
“In case during the supervisory review…if a bank, which has declared itself compliant with ECBA based on audited figures is found to be non-compliant with ECBA based on assessed figures, the bank shall be subject to appropriate supervisory and/or enforcement action,” per the Draft circular.
The action includes de-barring such a bank from self-reviewing itself as ECBA-compliant for a period as deemed fit by the supervisor subject to a minimum of one year from the date of such supervisory review report date.
The central bank said a UCB may extend its area of operation to the whole of its district of registration without its prior permission. Further, a UCB in compliance with ECBA may extend its area of operation to a maximum of three districts of its choice within its state of registration (other than its district of registration), without prior RBI permission.
RBI approval
A UCB (Tier 2/ deposits of ₹100 crore to ₹1,000 crore, Tier 3/ deposits of ₹1,000 crore to ₹10,000 crore and Tier 4/ deposits more than ₹10,000 crore) will be permitted to extend its area of operation to a maximum of five districts in a financial year, subject to the availability of adequate headroom capital required for opening at least one branch in each of the proposed districts.
A UCB in Tier 3 and 4 will be permitted to extend its area of operation to a maximum of two States in a financial year, subject to the availability of adequate headroom capital required for opening at least five branches in each proposed State.
The RBI has invited comments on the draft directions from public/stakeholders till August 25.
Published on July 28, 2025
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