Urban Co-operative Banks Expand Credit Role as Outstanding Balances Nearly Double in Five Years

Urban Co-operative Banks (UCBs) are steadily strengthening their role in India’s credit ecosystem, supported by sustained balance growth, improving asset quality, and rising demand from retail customers and small businesses across semi-urban and emerging regions.

Outstanding credit balances of UCBs reached ₹3.4 lakh crore as of September 2025, marking a 1.9-times increase over the past five years, according to Sahakaar Trends, a joint publication by the National Urban Co-operative Finance and Development Corporation (NUCFDC) and TransUnion CIBIL. While UCBs account for around 1.8% of overall industry credit, the report highlights a sector expanding in scale while adapting to evolving borrower profiles and regulatory expectations.

Bhavesh Jain, MD and CEO of TransUnion CIBIL, said UCBs are increasingly extending formal credit beyond large urban centres into “Bharat,” enabling households and small enterprises in semi-urban areas to access institutional finance. He noted that maintaining credit quality while broadening financial access will remain central to sustaining inclusive growth.

Shri Prabhat Chaturvedi, CEO of NUCFDC, emphasized that growing borrower trust has driven expansion, particularly in regions where access to formal credit remains limited. He added that strengthening institutional capacity, operational efficiency, and governance frameworks will be essential as UCBs scale up their operations.

Lending Concentrated in Eight Core Products

UCB lending continues to be concentrated across eight major products—commercial loans, housing loans, retail business loans, loan against property, gold loans, personal loans, auto loans, and loans against bank deposits. Together, these accounted for nearly 83% of total outstanding balances as of September 2025, reflecting a strong focus on collateral-backed retail lending and credit to small enterprises.

Commercial loans hold the largest share at 30%, followed by housing loans at 14% and retail business loans at 12%. Over the past five years, gold loans recorded the fastest growth with a 49% compound annual growth rate, while housing and retail business loans grew at 19% each.

Average housing loan ticket sizes for UCBs stood at around ₹23 lakh, slightly lower than housing finance companies at ₹26 lakh. Gold loan ticket sizes averaged ₹1.3 lakh compared with ₹2.3 lakh for public sector banks. However, commercial loan ticket sizes at UCBs averaged ₹50 lakh, higher than ₹37 lakh for PSU banks, indicating stronger participation in small and mid-enterprise financing.

Gold Loans Offer Growth Opportunity

Gold loans currently account for about 5% of UCB portfolios but present a significant growth opportunity. Despite serving a relatively higher proportion of below-prime borrowers compared with PSU banks, asset-quality indicators have improved, with delinquency levels steadily declining in recent periods.

Commercial Lending Leads Portfolio Expansion

Commercial loans remain the primary driver of UCB credit expansion. Demand for commercial loans has risen sharply since September 2020, supported by higher enquiry-to-origination conversion rates compared with PSU banks.

However, disbursement timelines remain slower, with 45% of loans disbursed within 15 days compared to 61% for PSU banks. UCBs also maintain a higher share of low-risk borrowers at 49%, alongside 45% medium-risk and 6% high-risk borrowers.

Housing Loan Demand Rising in Urban and Semi-Urban Markets

Housing loans represent the second-largest segment of UCB lending and have recorded nearly two-fold growth over five years. Demand has been driven largely by younger borrowers, women customers, and new-to-credit individuals, particularly in metro and semi-urban regions.

Asset quality has improved as well, with housing loan delinquencies (90+ days past due) declining to 2.8% in September 2025 from 3.2% a year earlier.

Personal Loan Portfolio Shows Improving Credit Profile

Personal loan demand has strengthened, with UCBs achieving higher enquiry conversion rates of 39% compared with 22% for NBFCs. While disbursement speed remains slower, borrower quality has improved significantly. Personal loan delinquencies declined from about 4.5% in September 2020 to nearly 2.1% by September 2025.

Scope to Deepen Credit Relationships

The report also highlights opportunities for portfolio deepening. As of March 2025, UCBs had about 30 lakh live retail borrowers, but only 6% also held commercial credit relationships. Between April and September 2025, nearly 3,000 such borrowers sourced commercial loans from PSU banks worth approximately ₹724 crore, suggesting untapped cross-selling potential for UCBs.

Strengthening Role in Inclusive Growth

Overall, the sustained expansion of UCBs reflects a sector strengthening its balance sheets while modernising operations and adopting technology-enabled risk frameworks. With improving asset quality and disciplined credit growth, UCBs are increasingly positioned to support inclusive economic participation and deepen formal credit penetration across India’s urban and semi-urban landscape.

“As UCBs balance their community-based strengths with data-driven decision-making and regulatory alignment, they are set to play an increasingly meaningful role in advancing inclusive economic growth,” Jain added.