Reserve Bank of India (Urban Co-operative Banks - Compliance Function) Directions, 2026
RBI notification RBI/DoS/2026-27/435 · 31 Jul 2026
RBI notification RBI/DoS/2026-27/435 · 31 Jul 2026
Summary
Check the official recordThe Reserve Bank of India establishes a compliance framework for Urban Co-operative Banks (UCBs). The directions mandate a board-approved compliance policy, an independent compliance function, and specific governance roles for senior management. UCBs in Tier 3 and Tier 4 must appoint a Chief Compliance Officer (CCO) with a minimum three-year tenure, reporting directly to the Board or Managing Director. UCBs in Tier 1 and Tier 2 must designate a Compliance Officer. The framework requires UCBs to implement technology-based monitoring tools and conduct annual compliance risk assessments. These directions apply immediately. UCBs in Tier 3 and Tier 4 exiting All Inclusive Directions receive a six-month transition period to ensure compliance.
What you must do
Key dates
Who is affected
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Exceptions
RBI/DoS/2026-27/435 DoS.CO.PPG.29/11.01.005/2026-27 July 31, 2026
Reserve Bank of India (Urban Co-operative Banks - Compliance Function) Directions, 2026
Introduction Chapter I - Preliminary A. Short Title and Commencement B. Applicability C. Definitions Chapter II - Governance and Oversight A. Role of the Board B. Role of the Senior Management C. Compliance Policy Chapter III - Scope, Structure, and Responsibilities A. Scope B. Structure C. Staffing D. Roles and Responsibilities E. Internal Audit Chapter IV - Chief Compliance Officer A. Appointment B. Authority, Stature, and Independence C. Reporting Requirements D. Roles and Responsibilities Chapter V – Compliance Officer A. Designation B. Roles and Responsibilities Chapter VI - Use of Technology for Monitoring Chapter VII - Repeal and Other Provisions A. Repeal and Saving B. Application of Other Laws Not barred C. Interpretations
The Compliance function is a critical element of the corporate governance framework of an Urban Co-operative Bank. The provisions set out in these Directions represent minimum standards, based on the principle of proportionality, and the Urban Co-operative Bank shall structure its compliance framework in line with its governance arrangements, scale of operations, risk profile, and organisational structure.
In exercise of the powers conferred by Section 35-A read with Section 56 of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues Directions hereinafter specified.
For the purpose of these Directions, ‘Urban Co-operative Banks’ shall mean Primary Co-operative Banks as defined under Section 5(ccv) as applicable to co-operative societies, read with Section 56 of Banking Regulation Act, 1949.
Provided that Chapter II, III, IV and VI of these Directions shall be applicable only to UCBs in Tier 3 and Tier 4, except those under All Inclusive Directions, while Chapter V of these Directions shall be applicable only to UCBs in Tier 1 and Tier 2.
Provided that a transition time of six months will be provided to UCBs in Tier 3 and Tier 4, for ensuring compliance with these Directions, as and when they come out of All Inclusive Directions.
Note: The applicability under these Directions is in line with the regulatory structure for UCBs as set out in Reserve Bank of India (Urban Co-operative Banks – Licensing, Scheduling and Regulatory Classification) Guidelines, 2025.
In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below: (1) ‘Compliance Risk’ shall mean the risk of legal or regulatory sanctions, material financial loss, or loss of reputation a UCB may suffer, as a result of its failure to comply with laws, regulations, rules, and codes of conduct, applicable to its activities.
All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the Companies Act, 2013, or any statutory modification or re-enactment thereto or other regulations issued by RBI or the Glossary of Terms published by RBI or as used in commercial parlance, as the case may be.
The Board-approved Compliance policy shall clearly spell out its compliance philosophy, expectations on compliance culture, structure, and role of the Compliance function, the role of Chief Compliance Officer (CCO), processes for identifying, assessing, monitoring, managing and reporting on compliance risk. The policy shall be reviewed at least once a year.
The policy shall ensure coverage of the following aspects: (1) Measures to ensure the independence of the Compliance function and its responsibility to freely disclose findings and views to Senior Management, Board / ACB; (2) Focus on various regulatory and statutory compliance requirements; (3) Monitoring mechanism for the compliance testing procedure; (4) Reporting requirements, including inter alia compliance risk assessment and change in risk profile to the senior management and to the Board / ACB; (5) The authority of the Compliance function to have access to information throughout the UCB; (6) A mechanism for dissemination of information on regulatory prescriptions and guidelines among staff and periodic updating of operational manuals; and (7) The approval process for all new processes and products by the Compliance Department, prior to their introduction.
The CCO shall head the Compliance Department, meeting the requirements prescribed under Chapter IV of these Directions. The UCB is free to adopt its own organisational structure for the Compliance function. However, the function shall be independent and sufficiently resourced, its responsibilities shall be clearly specified, and its activities shall be subject to periodic and independent review.
In case of UCBs having separate Departments / divisions looking after compliance with different statutory and other requirements, the Departments concerned shall hold the prime responsibility for their respective areas, which shall be clearly outlined. Adherence to applicable statutory provisions and regulations is the responsibility of each staff member. However, Compliance Function would need to ensure overall oversight.
The staff in the Compliance Department shall primarily focus on Compliance function. However, the UCB may assign some other duties to the Compliance staff while ensuring that there is no conflict of interest.
Apart from having staff with basic qualifications and practical experience in business lines / audit & inspection functions, Compliance function shall have adequate staff members with knowledge of statutory / regulatory prescriptions, law, accountancy, risk management, and information technology. The UCB shall ensure appropriate succession planning to avoid any future skill gap.
Compliance function shall be responsible for undertaking the following activities at the minimum: (1) Assist the Board and the senior management in overseeing the implementation of Compliance policy including policies and procedures, prescriptions in compliance manuals, and internal codes of conduct. (2) Play the central role in identifying the level of compliance risk in the organisation. The compliance risks in existing / new products and processes shall be analysed and appropriate risk mitigants shall be put in place. The Compliance function shall subject all new products to intensive monitoring at least for the first six months of introduction to ensure that the indicative parameters of compliance risk are adequately monitored. (3) Compliance function shall monitor and test compliance by performing sufficient and representative compliance testing, and the results of such compliance testing shall be reported to the senior management. It shall periodically circulate the instances of compliance failures among staff, along with the required preventive instructions. The UCB shall examine staff accountability for major compliance failures. (4) Ensure compliance of regulatory / supervisory directions given by RBI in both letter and spirit in a time-bound and sustainable manner. The UCB shall put in place an effective Compliance Program where all Risk Mitigation Plan / Monitorable Action Plan points are complied with within the timelines prescribed. Compliance to RBI inspection reports shall be communicated to RBI necessarily through the office of the Compliance function. (5) Attend to compliance with directions from other regulators in cases where the activities of the entity are not limited to the regulation / supervision of RBI. Further, the Compliance function shall bring to the notice of RBI, any discomfort conveyed to the UCB on any issue by other regulators, and action taken by any other authorities / law enforcement agencies.
The Compliance Department shall also serve as a reference point for the staff from operational Departments for seeking clarifications / interpretations of various regulatory and statutory guidelines.