Govt, RBI Take Multiple Steps to Strengthen Cooperative Banks, Boost Deposit Security and Digital Inclusion
New Delhi: The government and the Reserve Bank of India have undertaken a series of measures to strengthen the financial health, governance and digital inclusion of cooperative banks, while also enhancing deposit security, credit flow and regulatory oversight, Parliament was informed on Tuesday.
Replying to a query in the Rajya Sabha, Minister of State for Finance Pankaj Chaudhary said the RBI, in consultation with the central government, has allowed loans sanctioned by banks to the National Cooperative Development Corporation from January 19, 2026, to be classified as priority sector lending. These loans are meant for on-lending to cooperative societies under categories specified in the Master Direction on Priority Sector Lending, 2025.
He clarified that the benefit applies to banks other than Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks and Local Area Banks, and is intended to improve credit availability to the cooperative sector.
Chaudhary said that Urban Cooperative Banks have been permitted to open new branches and that their housing loan limits have been raised from 10 per cent to 25 per cent of total loans and advances. These steps are aimed at expanding outreach and improving lending capacity.
The minister also informed the House that amendments to the Banking Regulation Act have extended the tenure of directors of cooperative banks from eight years to ten years. In addition, the licensing fee for onboarding cooperative banks to the Aadhaar-enabled Payment System has been reduced to promote wider adoption of digital payments.
To strengthen operational and technological capabilities, the National Urban Co-operative Finance and Development Corporation Limited has been set up as a non-deposit-taking NBFC. The body will act as an umbrella organisation for Urban Cooperative Banks, providing information technology infrastructure and operational support.
For rural institutions, the government has established ‘Sahakar Sarthi’ to deliver technological services to Rural Cooperative Banks. The RBI has also brought Rural Cooperative Banks under the Integrated Ombudsman Scheme, enabling customers to seek grievance redressal through a unified platform.
On deposit safety, Chaudhary said the Deposit Insurance and Credit Guarantee Corporation provides insurance cover of up to Rs 5 lakh per depositor per bank, including principal and interest, for all cooperative banks.
Our Thoughts
The measures outlined by the government and the RBI signal a sustained effort to modernise India’s cooperative banking sector while addressing long-standing concerns around governance, technology and depositor confidence. Expanding priority sector credit, strengthening digital infrastructure and improving regulatory safeguards could help cooperative banks play a more effective role in financial inclusion. The challenge will lie in ensuring consistent implementation and monitoring so that these reforms translate into stronger institutions and greater trust among customers.