NUCFDC to urge RBI to allow small UCBs to offer digital services

The National Urban Co-operative Financial and Development Corp. Ltd (NUCFDC)—the umbrella body for India’s urban cooperative banks (UCBs)—plans to request the banking regulator to allow smaller UCBs with net worths below ₹50 crore to offer digital services, including internet banking.

Under Reserve Bank of India (RBI) regulations, only banks with a net worth of more than ₹50 crore are allowed to offer digital services and internet banking facilities. However, more than half of the 1,462 UCBs—which collectively hold deposits of ₹5.5 trillion—have net worths below ₹50 crore.

“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,” said Prabhat Chaturvedi, chief executive, NUCFDC, in an interview.

NUCFDC, which got its licence to operate as a mid-layer non-banking financial company (NBFC) in February 2024, is currently focusing on providing the non-fund-based support systems to UCBs. It is building the IT capabilities, digital capabilities, and a central stack, which includes hardware, applications, cybersecurity, manpower, and maintenance, all bundled, to be provided to UCBs across the country.

The strengthening of infrastructure is being undertaken for 440 of the total 1,462 cooperative banks that have partnered with the umbrella body.

Chaturvedi said the remaining UCBs, largely smaller ones (tier-1), with a deposit base of less than ₹100 crore, would become part of the central digital universe over the next few months.

Queries sent to the finance ministry and the RBI remained unanswered until publication.

Great enabler

“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. Already, a few larger UCBs are competing with commercial banks,” said Rakesh Arrawatia, professor of finance and accounting at the Institute of Rural Management, Anand, Gujarat.

As part of its digital services initiative for the sector, NUCFDC has also launched two digital solutions—Sahakar Digipay and Sahakar Digiloan—aimed at strengthening the payments infrastructure and automating lending operations across the UCBs.

The initiative forms part of NUCFDC’s broader strategy to drive digital transformation, operational efficiency, and customer-centric innovation within the UCB ecosystem at affordable costs.

Smaller UCBs can’t use several of these digital solutions despite partnering with NUCFDC. Therefore, the body is seeking an RBI exemption from the rule that restricts digital banking for banks with net worths below ₹50 crore.

NUCFDC is an initiative aimed at revitaliszing, modernizing, and strengthening UCBs. It plays a key role in the country’s mission to strengthen cooperative banks, aligning with the government’s vision of financial inclusivity and “Sahakar Se Samriddhi”.

Its prime functions include empowering UCB boards with enhanced decision-making capabilities, ensuring liquidity stability with timely liquidity support to prevent cash flow challenges and disruptions and capacity building and risk management by enhancing operational efficiency through training and development programmes.