Digital Banking Access for Small Urban Cooperative Banks
The National Urban Co-operative Financial and Development Corp. Ltd (NUCFDC), the umbrella organization representing India's urban cooperative banks (UCBs), is preparing to approach the Reserve Bank of India with a significant request. The body plans to seek regulatory approval allowing smaller UCBs with net worth below ₹50 crore to provide digital services, including internet banking facilities.
Under current RBI regulations, only banks maintaining a net worth exceeding ₹50 crore are permitted to offer digital services and internet banking. This restriction affects more than half of the 1,462 UCBs operating across India, which collectively hold substantial deposits of ₹5.5 trillion.
Centralized Infrastructure Solution
Prabhat Chaturvedi, Chief Executive of NUCFDC, revealed in an interview that the organization is carefully studying the existing regulations. "We are studying the regulation, and we will seek the approval from the RBI that if UCBs are part of a centralized quality infrastructure, which is cyber secured, can they be allowed to offer internet banking, mobile banking, UPI services," Chaturvedi stated.
NUCFDC, which received its license to operate as a mid-layer non-banking financial company (NBFC) in February 2024, is currently focused on providing non-fund-based support systems to urban cooperative banks. The organization is actively building comprehensive IT and digital capabilities, including a central stack that bundles hardware, applications, cybersecurity measures, manpower, and maintenance services for nationwide distribution to UCBs.
The infrastructure strengthening initiative currently involves 440 of the total 1,462 cooperative banks that have partnered with the umbrella body. Chaturvedi confirmed that the remaining UCBs, primarily smaller tier-1 institutions with deposit bases under ₹100 crore, would integrate into this central digital ecosystem within the coming months.
Driving Digital Transformation and Financial Inclusion
As part of its broader digital services strategy for the sector, NUCFDC has launched two significant digital solutions: Sahakar Digipay and Sahakar Digiloan. These platforms aim to strengthen payment infrastructure and automate lending operations across the urban cooperative banking network.
This initiative represents a crucial component of NUCFDC's comprehensive strategy to drive digital transformation, enhance operational efficiency, and promote customer-centric innovation within the UCB ecosystem, all while maintaining affordable costs.
Despite partnering with NUCFDC, smaller urban cooperative banks cannot utilize many of these digital solutions due to the existing net worth restrictions. This limitation has prompted the umbrella body to seek an RBI exemption from the rule that currently prevents banks with net worth below ₹50 crore from offering digital banking services.
Professor Rakesh Arrawatia from the Institute of Rural Management in Anand, Gujarat, emphasized the potential of these institutions. "There are some UCBs that are really doing well. These banks have the potential to contribute to the economy and also have a cooperative structure. If UCBs receive capital support and permission to offer certain services, they can compete with large private and public banks," he noted.
NUCFDC represents a significant initiative aimed at revitalizing, modernizing, and strengthening urban cooperative banks throughout India. The organization plays a vital role in the country's mission to enhance cooperative banking infrastructure, aligning with the government's vision of financial inclusivity and the "Sahakar Se Samriddhi" initiative.
The prime functions of NUCFDC include empowering UCB boards with improved decision-making capabilities, ensuring liquidity stability through timely support to prevent cash flow challenges, and facilitating capacity building and risk management through training and development programs that enhance operational efficiency.
