The Reserve Bank of India (RBI), in consultation with the Government of India, has announced a set of measures intended to improve the financial health, governance standards and digital readiness of cooperative banks. Central to the latest move is the decision that loans sanctioned by banks to the National Cooperative Development Corporation (NCDC) for on‑lending to cooperative societies will now qualify as priority sector lending (PSL) under the respective categories, with effect from January 19, 2026.
This applies to scheduled commercial banks other than Regional Rural Banks, Urban Cooperative Banks, Small Finance Banks and Local Area Banks, and is aligned to the purposes and activities defined in the Master Direction on Priority Sector Lending, 2025. By routing PSL‑eligible funds through a specialised institution such as NCDC, the framework seeks to expand and formalise credit access for cooperatives while keeping it within an established regulatory perimeter.
Strengthening the Cooperative Credit Channel
NCDC, a statutory corporation under the administrative control of the Ministry of Cooperation, has long been a key financier for cooperatives in agriculture, processing, marketing and allied activities. The RBI’s decision to recognise bank lending to NCDC as PSL when on‑lent to cooperative societies effectively gives banks a clearer incentive to deploy capital into this channel rather than treating cooperative exposure as a marginal activity. For cooperative societies, this can translate into more predictable and potentially lower‑cost funding for credit, infrastructure and working capital, particularly in rural and semi‑urban regions where alternative formal finance remains patchy.
The move builds on a broader set of steps aimed at improving cooperative banks’ balance sheets and operating flexibility. Urban Cooperative Banks have been permitted to open new branches, widening their reach in local markets. Their housing loan exposure limits have been raised from 10 per cent to 25 per cent of total loans and advances, allowing them to participate more meaningfully in retail credit where risk is better diversified and collateralised.
At the governance level, amendments to the Banking Regulation Act have increased directors’ terms on cooperative bank boards from eight to ten years, with the intent of providing more continuity and accountability in leadership while still retaining the need for periodic renewal.
Digital Infrastructure, Shared Services and Customer Protection
Alongside capital and governance reforms, there is a clear emphasis on bringing cooperative banks onto modern digital rails. Licensing fees for onboarding to the Aadhaar Enabled Payment System (AePS) have been reduced, lowering the cost of offering interoperable, biometric‑linked payment services to customers. This lowers friction for cooperative banks seeking to align with national payments infrastructure and supports a more uniform customer experience across different types of banks.
Institutionally, two shared entities have been created to address technology and operational gaps. The National Urban Co‑operative Finance and Development Corporation Limited (NUCFDC), a non‑deposit taking NBFC, has been set up as an umbrella organisation for Urban Cooperative Banks to provide information technology infrastructure and operational support.
In parallel, a Shared Services Entity named Sahakar Sarthi has been established to offer technological services to Rural Cooperative Banks. These shared platforms are designed to help institutions with limited in‑house capacity access common core banking, cybersecurity, analytics and compliance tools, rather than forcing each bank to build and maintain its own systems at sub‑scale.
A More Resilient Cooperative Banking Architecture
Taken together, the PSL reclassification, governance tweaks, digital‑infrastructure support and customer‑protection measures indicate a deliberate policy direction: to reposition cooperative banks as more resilient, better governed and technologically enabled institutions in the broader financial system, rather than as legacy entities on the margins.
For cooperative societies, easier access to credit through NCDC and better‑equipped partner banks can support investment in storage, processing, logistics and local enterprises. For customers, especially in rural and semi‑urban India, a more modern cooperative banking network promises safer deposits, wider product access and improved service quality backed by national payment and grievance‑redress systems.
