The Reserve Bank of India (RBI) is set to release a discussion paper focusing on capital-raising avenues for Urban Cooperative Banks (UCBs), aiming to gather feedback and suggestions from various stakeholders.
This move is expected to open up new opportunities for UCBs to explore additional methods for raising capital, a longstanding point of debate within the cooperative banking sector.
In recent years, the issue of capital raising has been repeatedly raised by the apex body of UCBs—NAFCUB—as well as Sahakar Bharati. These bodies have even approached Union Finance Minister Nirmala Sitharaman, seeking more flexibility for UCBs to enhance their capital base.
Currently, UCBs are allowed to raise equity share capital by issuing equity shares to individuals within their operational area who are enrolled as members, as per the provisions of their by-laws. Additionally, they can issue further equity shares to existing members. To strengthen their capital base, UCBs are also permitted to issue Preference Shares and Debt instruments.
The need for an updated framework stems from the amendments introduced in the Banking Regulation (Amendment) Act, 2020. Although the RBI issued an initial set of guidelines in 2022 to regulate the issuance of share capital and securities for UCBs, these guidelines did not address the newly enabled provisions, such as the issuance of special shares or shares at a premium—concepts that are relatively new to the cooperative banking sector.
In this context, the Expert Committee on Primary (Urban) Cooperative Banks, chaired by Shri N.S. Vishwanathan, former Deputy Governor of RBI, provided guiding principles through its recommendations, focusing on the new capital provisions. To operationalize these recommendations, the RBI formed a Working Group, which has now developed a framework for the discussion paper.
This upcoming discussion paper, based on the Working Group’s recommendations, will seek input from stakeholders on how UCBs can diversify their capital-raising mechanisms, ensuring they remain aligned with regulatory frameworks while supporting their growth and financial stability.
Stakeholder feedback is expected to play a critical role in shaping the final set of guidelines, which will likely bring the much-needed flexibility and innovation to the capital-raising process for UCBs.
Reacting to the RBI announcement Prabhat Chaturvedi, newly appointed CEO of the National Urban Cooperative Finance and Development Corporation (NUCFDC), said, “Today’s RBI announcement to issue a discussion paper on capital-raising avenues for Urban Cooperative Banks is a positive step. The regulator is focused on making the UCBs an integral part of the Indian financial ecosystem, boosting their competitiveness, and maximizing their capacity to serve their customers.”