Urban Co-operative Banks Undertaking of Financial Services Directions

RBI/DoR/2025-26/272 DoR.AUT.REC.No.191/24-01-041/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Directions, 2025 (Updated as on April 27, 2026)

Table of Contents Chapter I – Preliminary A. Short Title and Commencement B. Applicability C. Definitions Chapter II – General Guidelines A. Role of the Board B. Investments in Alternative Investment Funds (AIFs) Chapter III – Financial Services A. Mutual Funds Distribution as Agents B. Insurance Business as Corporate Agent without risk Participation C. Insurance Business on Referral basis without risk Participation (Sharing of Physical Space) D. Conduct of Foreign Exchange Business E. Online Trading Facility to Demat Account Holders F. Point of Presence (PoP) Services under Pension Fund Regulatory and Development Authority (PFRDA) G. Merchant Acquisition Business H. Undertaking of Activity as PAN Service Agents (PSA) I. Issue of Pre-paid Payment Instruments Chapter IV – Repeal and Other Provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Annex I

In exercise of the powers conferred by Sections 35A 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 the 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 – Undertaking of Financial Services) Directions, 2025.

2. These Directions shall come into force with immediate effect.[^1]

B. Applicability

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

In this context, Urban Co-operative Banks shall mean Primary Co-operative Banks as defined under Section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

C. Definitions

4. In these directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(1) ‘Debtor company’ means any company to which a UCB currently has or previously had a loan or investment exposure (excluding equity instruments) anytime during the preceding twelve months;

(2) ‘Equity instrument’ means equity shares, compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCD);

(3) ‘Financial Services Company’ means a company engaged in the ‘business of financial services’;

Explanation: The ‘business of financial services’ shall include –

• the forms of business enumerated in clauses (a), (c), (d), (e) of sub- Section (1) of Section 6 of the Banking Regulation Act, 1949 and notified under clause (o) of sub-Section (1) of Section 6 of the Banking Regulation Act, 1949, read with Section 56(e) of the Banking Regulation Act, 1949;
• the forms of business enumerated in clause (c) and clause (f) of Section 45 I of Reserve Bank of India Act, 1934;
• business of credit information as provided under the Credit Information Companies (Regulation) Act, 2005;
• operation of a payment system as defined under the Payment and Settlement Systems Act, 2007;
• operation of a stock exchange, commodity exchange, derivatives exchange or other exchange of similar nature;
• operation of a depository as provided under the Depositories Act, 1996;
• business of an asset reconstruction company as provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• business of a merchant banker, portfolio manager, stock broker, sub-broker, share transfer agent, trustee of trust deeds, registrar to an issue, merchant banker, underwriter, debenture trustee, investment adviser and such other intermediary as provided in the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder;
• business of a credit rating agency as defined in the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999;
• business of a collective investment scheme as defined under the Securities and Exchange Board of India Act, 1992;
• business of managing a pension fund;
• business of an authorised person as defined under the Foreign Exchange Management Act, 1999; and
• such other business as may be specified by RBI from time to time.

(4) ‘Government Securities’ shall have the same meaning as defined in the Government Securities Act, 2006;

(5) ‘Joint Venture’ shall have the same meaning as defined in terms of the Accounting Standards of the Institute of Chartered Accountants of India;

(6) ‘Mutual Fund’ shall have the same meaning as defined in SEBI (Mutual Funds) Regulations, 1996;

(7) ‘Non-Financial Services Company’ means a company engaged in businesses other than those specified in clause (3) above;

(8) ‘Pension Fund Management’ means management of a pension fund as defined in the Pension Fund Regulatory Development Authority (Exit and Withdrawals under National Pension System) Regulations, 2014;

(9) ‘Portfolio Management Services’ means the service offered by a portfolio manager as defined in the SEBI (Portfolio Managers) Regulations, 1993;

(10) ‘Referral Services’ means the arrangement between a UCB and a third-party financial product provider, for referring the customers of the bank to the third-party financial product provider; and

(11) ‘Subsidiary’ means a subsidiary as defined in terms of the Accounting Standards of the Institute of Chartered Accountants of India.

5. All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934, or any statutory modification or re-enactment thereto, or Glossary of Terms published by RBI or as used in commercial parlance, as the case may be.

Chapter II – General Guidelines

A. Role of the Board

6. The Board of a UCB desirous of undertaking insurance business as corporate agent without risk participation shall pass a resolution approving the proposal to that effect. The Board shall approve proposal, if any, for entering into contracts (including for longer-terms) with insurance companies for undertaking insurance business on a referral basis (without risk participation and with sharing of physical space). Further, Board of a UCB desirous of undertaking mutual fund business shall pass a resolution to that effect.

7. The Board of a UCB desirous of applying for AD Category-I/II license shall approve and pass a resolution to that effect.

8. The Board of a UCB desirous of providing online trading facility to its demat account holders shall pass a resolution confirming that the UCB shall not offer investment tips or recommendations to customers, nor undertake portfolio management services, while providing online trading facilities to demat account holders.

9. The Board shall approve a comprehensive policy covering merchant acquisition and customer grievance redressal mechanism for deployment of third-party point-of-sale terminals.

10. The Board shall frame and approve a detailed policy on customer grievance redressal mechanism, including an escalation matrix for resolution of complaints, prior to undertaking issuance of Pre-paid Payment Instruments.

B. Investments in Alternative Investment Funds (AIFs)

B.1 General Requirements

11. A UCB’s investment policy shall have suitable provisions governing its investments in an AIF Scheme, compliant with extant law and regulations.

B.2 Limits on Investments and Provisioning

12. A UCB shall not individually contribute more than 10 percent of the corpus of an AIF Scheme.

13. The aggregate contribution by all Regulated Entities (REs) in any AIF Scheme shall not be more than 20 percent of the corpus of that scheme.

In this context, ‘RE’ shall mean:

• Commercial Banks (including Small Finance Banks, Local Area Banks);
• Regional Rural Banks;
• Urban Co-operative Banks;
• State Co-operative Banks / Central Co-operative Banks;
• All-India Financial Institutions;
• Non-Banking Financial Companies (including Housing Finance Companies);

14. Where a UCB contributes more than five percent of the corpus of an AIF Scheme that has downstream investment (excluding equity instruments) in a debtor company of the UCB, the UCB shall be required to make 100 percent provision to the extent of its proportionate investment in the debtor company through the AIF Scheme, subject to a cap equivalent to UCB’s direct loan and / or investment exposure to the said debtor company.

15. Notwithstanding the provisions of paragraph 14, where a UCB’s contribution is in the form of subordinated units, it shall deduct the entire investment from its capital funds – proportionately from both Tier-1 and Tier-2 capital (wherever applicable).