Urban co-operative banks are confined to the municipal area of a town. They are of types: (i) unit banking type, and (ii) branch banking type. Urban co-operative banks usually meet the needs of specific types or groups of members pertaining to a certain trade, profession, community or even locality. Urban Co-operative Banks are also called Primary Co-operative Banks (PCBs) by the Reserve Bank. The Reserve Bank of India defines PCBs as ‘small-sized co-operatively organised banking units which operate in metropolitan, urban and semi-urban centres to cater mainly to the needs of small borrowers, viz., owners of small scale industrial units, retail traders, professionals and salaried classes’.

The Reserve Bank grants banking licences to existing/ new banks and branches. The Urban Banks Department, established in the Reserve Bank in 1984, monitors and regulates the growth of PCBs. UCBs are unique in terms of their clientele mix and channels of credit delivery. UCBs are organised with the objective of promoting thrift and self-help among the middle class/lower middle class population and providing credit facilities to the people with small means in the urban/semi-urban centres. On account of their local feel and familiarity, UCBs are important for achieving greater financial inclusion. In recent times, however, UCBs have shown several weaknesses, particularly related to their financial health. Recognising their important role in the financial system, it has been the Endeavour of the Reserve Bank to promote their healthy growth. However, the heterogeneous nature of the sector has called for a differentiated regime of regulation. In recent years, therefore, the Reserve Bank has provided regulatory support to small and weak UCBs, while at the same time strengthening their supervision. Prudential norms were also fine-tuned to the evolving circumstances and newer business opportunities were opened for UCBs to enhance their fee-based and other non-interest income. Several important measures relating to improvement in credit delivery, customer service, financial inclusion and financial markets, taken for the commercial banks were extended to UCBs with suitable adaptations. To strengthen the urban co-operative banking sector, the Reserve Bank took several policy initiatives during the year relating to prudential norms, credit delivery, improvement in customer service and enhancement of business opportunities, and financial inclusion. Urban co-operative banks are regulated and supervised by State Registrars of Co-operative Societies (RCS) in case of single-state co-operative banks. Central Registrar of Co-operative Societies (CRCS) in case of multi-state co-operative banks and by the Reserve Bank. The RCS exercises powers under the respective Co-operative Societies Act of the States with regard to incorporation, registration, management, amalgamation, reconstruction or liquidation. Such powers in case of UCBs, that have multi-state presence, are exercised by the CRCS. The banking related functions such as issue of license to start new banks/branches, matters relating to interest rates, loan policies, investments and prudential exposure norms are regulated and supervised by the Reserve Bank under the provisions of the Banking Regulation Act, 1949 (aACS).