Reserve Bank of India (Urban Co-operative Banks - Miscellaneous) Supervisory Directions, 2026

RBI/DoS/2026-27/443 DoS.CO.PPG.37/11.01.005/2026-27 July 31, 2026

Table of Contents

• Chapter I - Preliminary
  • A. Short Title and Commencement
  • B. Applicability
  • C. Definitions
• Chapter II - Core Banking Solution Implementation
• Chapter III - Prompt Corrective Action Framework
• Chapter IV - Fair Practices Code - Charging of Interest
• Chapter V - Nomination Facility
• Chapter VI - Fraud Prevention Measures
  • A. Co-ordination among various agencies
  • B. Legal and administrative measures
  • C. Precautions and Safeguards
    • C.1 Cash and valuables
    • C.2 Negotiable Instruments
    • C.3 Books of Accounts
    • C.4 Immovable Property and Stationery
    • C.5 Computerised Branches
  • D. Insurance
  • E. Snap Inspections
  • F. Other Instructions
• Chapter VII - Vigilance
• Chapter VIII - Repeal and Other Provisions
  • A. Repeal and Saving
  • B. Application of Other Laws Not Barred
  • C. Interpretations

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 - Miscellaneous) Supervisory 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 the Banking Regulation Act, 1949.

Provided that Chapter III of these Directions shall be applicable to UCBs in Tier 2, Tier 3 and Tier 4 categories except those under All Inclusive Directions (AID). Tier 1 UCBs, though not covered under the provisions of Chapter III of these Directions, shall be subject to enhanced monitoring under the extant supervisory framework. UCBs under AID shall continue to be monitored as hitherto including with respect to the conditions under AID. A suitable transition time shall be provided to such UCBs for compliance with the provisions of Chapter III of these Directions, as and when they come out of AID.

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. All expressions used in these Directions, 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 - Core Banking Solution Implementation

5. The UCB shall implement Core Banking Solution (CBS) in all its branches, progress of which may be informed to the Senior Supervisory Manager (SSM), RBI.
6. For this purpose, the UCB may refer to the document - ‘Core Banking Solution Requirements for Urban Cooperative Banks: Functional and Technical’ dealing with the functional and technical requirements for Core Banking Solution in UCBs prepared by the Institute for Development and Research in Banking Technology in consultation with RBI.

Chapter III - Prompt Corrective Action Framework

7. The objective of the Prompt Corrective Action (PCA) Framework is to enable supervisory intervention at an appropriate time and require the UCBs to initiate and implement remedial measures in a timely manner, to restore their financial health. The PCA Framework does not preclude RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the Framework.
8. Capital, Asset Quality and Profitability will be the key areas for monitoring in the PCA Framework. Indicators to be tracked for Capital, Asset Quality and Profitability would be Capital to Risk-weighted Assets Ratio (CRAR), Net Non-Performing Assets (NNPA) Ratio (percentage of net NPA to net advances) and net profit, respectively. Breach of any of the following risk threshold may result in invocation of PCA:

• For Tier 2 to 4 UCBs as per the glide path provided for achieving the regulatory minimum CRAR of 12 per cent by March 31, 2026.

9. A UCB will generally be placed under PCA Framework based on the Reported / Audited Annual Financial Results and / or the ongoing Supervisory Assessment made by RBI. However, RBI may impose PCA on any UCB during the course of a year (including migration from one threshold to another) in case the circumstances so warrant. Although supervisory action taken will primarily be based on the criteria specified under the PCA Framework, RBI will not be precluded from taking appropriate supervisory action in case stress is noticed in other important indicators / parameters or in case of serious governance issues. Also, RBI will not be precluded from taking any supervisory action other than those indicated in under PCA Framework, based on the merits of each case.
10. Once a UCB is placed under PCA, taking the UCB out of PCA Framework and / or withdrawal of restrictions imposed under the PCA Framework will be considered: (1) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI); and (2) based on supervisory comfort of RBI, including an assessment on sustainable improvement in key financials of the UCB.
11. When a UCB is placed under PCA, one or more of the following corrective actions may be prescribed:

12. Details on the common menu for selection of Discretionary Corrective Actions are as hereunder: (1) Special Supervisory Actions (i) Special Supervisory Monitoring Meetings at quarterly or other identified frequency. (ii) Special inspections / targeted scrutiny of the UCB. (iii) Cause a special and / or additional audit of the UCB under the extant supervisory mechanism and / or through external auditors. (iv) Resolution of the UCB by Amalgamation or Reconstruction [Reference: Section 45 of the Banking Regulation Act 1949 (BR Act)]. (2) Strategy related Actions RBI to advise the Board of UCBs to: (i) activate the Action Plan that has been duly approved by the supervisor; (ii) review the progress under the Action Plan on quarterly / monthly basis and submit the post-review progress report to RBI; (iii) undertake a detailed review of business model in terms of its sustainability, profitability of business lines and activities, and medium and long-term viability; (iv) review short term strategy focusing on addressing immediate concerns; (v) review medium term business plans, identify achievable targets, and set concrete milestones for progress and achievement; (vi) undertake business process reengineering as appropriate; (vii) undertake restructuring of operations as appropriate; (viii) restrict expansion of size of the balance sheet; and (ix) explore merger option if steps taken by it do not appear to be yielding the desired results; seeking a Board-approved proposal for merging the UCB with another bank or converting itself into a credit society. (3) Governance related Actions (i) RBI to actively engage with the UCB’s Board on various aspects as considered appropriate. (ii) RBI to remove managerial persons under relevant provisions of the BR Act as applicable. (iii) RBI to supersede the Board under Section 36AAA of the BR Act (AACS). (iv) RBI to appoint Additional Directors on the Board under relevant provisions of the BR Act as applicable. (v) RBI to impose other restrictions or conditions permissible under the BR Act. (4) Capital related Actions (i) Detailed Board level review of capital planning - UCB to submit a Board-approved Action Plan for increasing CRAR to minimum regulatory requirement or above within 12 months. (ii) Submission of plans and proposals for raising additional capital. (iii) Requiring the UCB to bolster reserves through retained profits. (iv) Restriction on investment in non-core business activities / concerns. (v) Restriction in expansion of high risk-weighted assets to conserve capital. (vi) Reduction in exposure to high risk sectors to conserve capital. (vii) Restrictions on increasing stake in non-core business activities / concerns. (5) Credit Risk related Actions (i) Preparation of time-bound plan and commitment for reduction of stock of NPAs - UCB to submit a Board-approved Action Plan for reducing its Net NPAs below the Risk Threshold 1. (ii) Preparation of and commitment to plan for containing generation of fresh NPAs. (iii) Higher provisions for NPAs / Non-Performing Investments and as part of the coverage regime. (iv) Strengthening of loan review mechanism. (v) Restrictions / reduction in total credit risk weight density (e.g. restriction / reduction in credit for borrowers below certain rating grades, restriction on fresh loans and advances carrying risk-weights more than 100 per cent and / or beyond the specified limit, restriction / reduction in unsecured exposures). (vi) Reduction in loan concentrations in identified sectors, industries or borrowers; Curtailment of sanction / renewal of credit facilities to sectors / segments having high proportion of NPAs / defaults. (vii) Reduction in exposure limits for fresh loans and advances. (viii) Sale of non-banking assets. (ix) Reduction in high risk-bearing assets. (x) Avoiding renewal of limits for defaulting borrowers. (xi) Action plan for recovery of assets through identification of areas (geography-wise, industry segment-wise, and borrower-wise) and setting up of dedicated Recovery Task Forces and Lok Adalats. (xii) Prohibition on expansion of credit / investment portfolios other than investment in government securities / other High-Quality Liquid Investments. (6) Liquidity / Market Risk related Actions (i) Restrictions on dealings / reduction in borrowings from the inter-bank market. (ii) Restrictions on accessing / renewing wholesale deposits / costly deposits. (iii) Prohibition on expansion of size of the deposits. (iv) Improving liquid assets to short term liabilities ratio. (7) HR related Actions (i) Restriction on staff expansion. (ii) Review of specialized training needs of existing staff. (8) Profitability related Actions (i) Appropriate restrictions on capital expenditure. (ii) Restrictions / reduction in variable operating costs. (9) Operations related Actions (i) Measures for reduction in interest and operating / administrative expenses. (ii) Restrictions on branch expansion plans. (iii) Reduction in non-core business activities. (iv) Restrictions on entering into new lines of business. (v) Reduction in leverage through reduction in non-fund-based business. (vi) Reduction in risky assets. (vii) Restrictions on non-credit asset creation. (viii) Restrictions in undertaking businesses as specified. (ix) Restriction / reduction of outsourcing activities. (x) Restrictions on new borrowings. (xi) Identifying and closure of loss making / non-remunerative / unviable businesses. (xii) Restrictions on entering specified business. (xiii) Rationalise branches, closing down or merging loss-making branches to the extent feasible. (10) Other Actions (i) Any other specific action that RBI may deem fit considering specific circumstances of the UCB.

Chapter IV - Fair Practices Code - Charging of Interest

13. The UCB, in the interest of fairness and transparency, shall review its practices regarding mode of disbursal of loans, application of interest and other charges, charging of Equated Monthly Instalments (EMIs), and take corrective action, including system level changes, as may be necessary, to address unfair practices, some of which are briefly explained below: (1) Charging of interest from the date of sanction of loan or execution of loan agreement and not from the date of actual disbursement of funds to the customer. For loans disbursed by cheque, charging interest from the cheque date while handing over the cheque to the customer several days later. (2) Charging of EMIs on the sanctioned loan amount rather than on the actual disbursed amount, without the knowledge or consent of the borrower. (3) Any changes in the amortisation schedule originally provided in the Key Facts Statement (KFS), with each part-disbursement of loan, not being communicated to the borrowers. (4) In case of disbursal or repayment of loans during a month, charging interest for the entire month rather than charging interest only for the period for which the loan was outstanding. (5) Collecting one or more instalments in advance but reckoning the full loan amount for charging interest.
14. These and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers. These are matters of serious concern to RBI.
15. The UCB may use online account transfers in lieu of cheques for loan disbursal.

Chapter V - Nomination Facility

16. The UCB shall obtain nomination in case of all existing and new eligible customers having deposit accounts, safe custody articles, and safety lockers, as the case may be, to avoid inconvenience and undue hardship to survivors / family members of deceased depositors, in accordance with relevant provisions of the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
17. The Board of Directors / Customer Service Committee (CSC) of the Board of the UCB shall review, on a periodic basis, the achievement of nomination coverage.
18. The UCB shall also report the progress on nomination coverage to the SSM, RBI through DAKSH portal on a quarterly basis.
19. The UCB shall suitably sensitise its frontline staff in the branches for obtaining nomination as well as appropriate handling of claims of deceased constituents and dealing with nominees / legal heirs. The UCB shall modify the Account Opening Forms suitably (if not already done) with provision for the customers to avail or opt out of nomination facility.
20. The UCB, in addition to directly notifying the customers, shall publicise the benefits of using the nomination facility through various media, including launching periodical drives towards achieving a full coverage of all eligible customer accounts.