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

Table of Contents

• 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

Introduction

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.

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks - Compliance Function) Directions, 2026.
2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as ‘UCBs’ and individually as ‘UCB’).

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.

C. Definitions

4. 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.

5. 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.

Chapter II - Governance and Oversight

A. Role of the Board

6. The Board / Audit Committee of Board (ACB) shall ensure that an appropriate Compliance policy is put in place and implemented. It shall prescribe the periodicity for review of compliance risk.

B. Role of the Senior Management

7. The senior management shall carry out an annual compliance risk assessment in order to identify and assess major compliance risks faced by the UCB and prepare a plan to manage the risks. It shall submit to the Board / ACB a review at the prescribed periodicity and a detailed annual review of compliance. The annual review shall ensure coverage of at least the following aspects: (1) Compliance failures, if any, during the preceding year and consequential losses and regulatory action, as also steps taken to avoid recurrence of the same (appropriate remedial or disciplinary action); (2) Listing of all major regulatory guidelines issued during the preceding year, and steps taken to ensure compliance; (3) Compliance with fair practices codes and adherence to standards set by self-regulatory bodies and accounting standards; and (4) Progress in the rectification of significant deficiencies and implementation of recommendations pointed out in various audits and RBI inspection reports.

C. Compliance Policy

8. 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.

9. 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.

Chapter III - Scope, Structure, and Responsibilities

A. Scope

10. Compliance function shall ensure strict observance of all statutory and regulatory requirements for the UCB, including standards of conduct, managing conflict of interest, treating customers fairly, and ensuring the suitability of customer service.

B. Structure

11. 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.

12. 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.

C. Staffing

13. 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.

14. 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.

D. Roles and Responsibilities

15. 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.

16. 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.

E. Internal Audit

17. Compliance risk shall be included in the risk assessment framework of the Internal Audit function, and Compliance function shall be subject to regular internal audit. The CCO should be kept informed of audit findings related to compliance, which should serve as a feedback mechanism for assessing the areas of compliance failures.