Urban Cooperative Banks (UCBs) are a type of primary cooperative bank, not formally defined but generally referring to cooperative societies operating in urban and semi-urban areas that have been granted a banking license under the Banking Regulation Act, 1949. The UCB movement originated in the late 19th century, inspired by cooperative movements in Britain and Germany, with the first known mutual aid society, the 'Anyonya Sahakari Mandali', established in Baroda in 1889. The problem they solved was mobilizing savings from middle and low-income urban groups and providing credit to their members, many of whom belonged to weaker sections. The Cooperative Credit Societies Act, 1904, gave the movement its initial impetus.
UCBs operate under a system of dual regulation. Their banking functions, such as licensing, prudential norms, and supervision, are regulated by the Reserve Bank of India (RBI), which gained regulatory ambit over UCBs in 1966 through an amendment to the Banking Regulation Act, 1949. Their administrative and management aspects, including registration and elections, are regulated by the Registrar of Co-operative Societies (RCS) of the respective State Government or the Central Registrar of Co-operative Societies for multi-state UCBs.
The regulatory framework has changed significantly, particularly with the enactment of the Banking Regulation (Amendment) Act, 2020, which came into force for UCBs on June 26, 2020. This amendment strengthened the RBI's supervisory powers over cooperative banks, extending governance-related provisions of the BR Act (such as Section 10, 10A, 10B, 35B, 36AB) to them. Key changes include empowering the RBI to approve the appointment and removal of the Chairman/MD/CEO and statutory auditors, and to supersede the Board of Directors. The amendment also enabled UCBs to raise capital by issuing equity, preference, or special shares and debentures/bonds. Furthermore, the RBI introduced a four-tier regulatory framework for UCBs in December 2022, replacing the earlier two-tier system, to calibrate requirements based on the bank's size. The RBI, which had suspended fresh licensing in 2004 due to governance failures, has recently decided to resume issuing licenses on an 'on-tap' basis. UCBs are connected to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides a financial safety net for their account holders.